What is an IPO? Summary of basic knowledge about IPO for investors

Article overview

What is an IPO? This is an important question that many investors ask when starting to learn about the stock market. This process is not only an opportunity to mobilize capital but also opens up new development strategies for businesses. In the following article, Long Phan will provide basic knowledge from which to answer important questions about an IPO to help you make effective and safe investments.

What is an IPO? Basic knowledge about an IPO for investors
What is an IPO? Basic knowledge about an IPO for investors

What is an IPO? The importance of an IPO to businesses and the stock market

IPO (Initial Public Offering) is a specialized term that refers to the first issuance of shares by a business to the public. According to the Law on Securities 2019, IPO is an important form for businesses to mobilize capital from the stock market.

The importance of IPO is shown in the following points:

  • Benefits in raising capital: IPO opens up opportunities to raise large amounts of capital from investors, helping businesses have enough finance to carry out expansion projects, develop new products or grow rapidly without having to rely on traditional sources of loans;
  • Benefits in enhancing transparency and reputation: The IPO process requires businesses to disclose financial information, thereby increasing transparency and building solid trust from investors, partners and customers. This not only strengthens reputation but also expands strategic cooperation opportunities at home and abroad;
  • Benefits in business expansion and investment: An IPO provides a strong source of capital for businesses to invest in infrastructure, expand production and develop new markets. At the same time, listing on the stock exchange creates favorable conditions for businesses to access other forms of finance, helping sustainable growth and improving competitiveness.

Conditions for issuing an IPO of businesses

According to the provisions of Article 15 of the Law on Securities 2019, when conducting an IPO, businesses need to meet the IPO conditions including:

  • Contributed charter capital at the time of registration for offering is 30 billion VND or more calculated according to the value recorded in the accounting books;
  • Business activities for 02 consecutive years immediately preceding the year of registration for offering must be profitable, and at the same time have no accumulated losses up to the year of registration for offering;
  • Have an issuance plan and a plan to use capital obtained from the stock offering approved by the General Meeting of Shareholders;
  • A minimum of 15% of the voting shares of the issuer must be sold to at least 100 investors who are not major shareholders; In case the charter capital of the issuing organization is 1,000 billion VND or more, the minimum ratio is 10% of the voting shares of the issuing organization;
  • Prior to the initial public offering of shares of the issuing organization, major shareholders must commit to jointly holding at least 20% of the issuing organization’s charter capital for at least 01 year from the date of completion of the offering;
  • The issuing organization is not under criminal prosecution or has been convicted of one of the crimes of violating the economic management order but has not had its criminal record erased;
  • There is a securities company that advises on registration documents to offer shares to the public, except in cases where the issuing organization is a securities company;
  • Have a commitment and must list or register to trade shares on the stock exchange system after the end of the offering;
  • The issuing organization must open an escrow account to receive money to buy shares in the offering.

>>> See more: Popular IPO forms today for businesses.

Detailed an IPO process

An IPO process in Vietnam often goes through the following specific stages:

Phase 1: Preparation phase:

Enterprises need to evaluate their capacity by checking the minimum capital requirement of 30 billion VND, analyzing the business results of the last two years and the ability to comply with IPO conditions according to the Law on Securities 2019. At the same time, enterprises need to evaluate their capacity. Enterprises must determine the potential to attract investors, develop a stock issuance plan including the number of shares, expected price and detailed capital use plan.

Phase 2: Appraisal and approval stage:

During the appraisal and approval stage, businesses need to choose a reputable securities company and sign an IPO consulting contract, while determining the scope of underwriting services.

Next, the business prepares legal documents, including drafting a prospectus, preparing audited financial reports and collecting necessary legal documents. Document components include:

  1. Decision of the Board of members or company owners approving the plan to convert a limited liability company into a joint stock company.
  2. Decision of the Board of Members or the company owner to approve the issuance plan, approve the plan to use capital raised from the offering (except for the case of initial public offering of shares to become a public company through changing the ownership structure but not increasing the charter capital of the issuing organization) and approve the listing or registration of shares for trading on the securities trading system.
  3. Document of commitment to hold shares of capital contributing members or company owners.
  4. Decision of the Board of Members or company owners approving a plan to ensure that the stock offering meets the regulations on foreign ownership ratio.
  5. Written agreement between the member whose capital is offered for sale and the company on the offering plan and offering price (if any).
  6. Decision of the Board of Members or the company owner approving the registration dossier for public offering of shares. For the public offering of shares by a credit institution, the dossier must have a written approval from the State Bank of Vietnam on the proposal to increase charter capital and transfer in accordance with the provisions of the law on credit institutions. For the public offering of shares by an insurance business organization, the dossier must have a written approval from the Ministry of Finance on the increase of charter capital and transfer in accordance with the provisions of the law on insurance business.

This dossier will be submitted to the State Securities Commission for appraisal. After checking the validity and transparency of the dossier, the Commission will issue a license to issue shares if all requirements meet the standards.

Phase 3: Release phase:

During the stage of determining the price and issuance time, businesses need to analyze the market to determine a reasonable issuance price range and choose the appropriate issuance method (auction or offering).

At the same time, businesses must build a detailed release schedule. Next, information disclosure includes officially announcing the issuance, promoting information to investors and organizing roadshows to introduce businesses and contact with potential investors.

Finally, the enterprise opens a subscription to buy shares, receives applications for registration and allocation of shares, and controls the distribution process to ensure fairness and transparency.

Phase 4: Post-release phase:

During the listing stage on the stock exchange, businesses need to complete listing documents and transaction registration, and determine the first trading date.

After completing the listing process, businesses must publish issuance results reports, periodically disclose information and ensure compliance with regulations of management agencies, maintain transparency and respond to requests. Meet legal requirements throughout the trading process on the floor.

IPO implementation process for businesses
IPO implementation process for businesses

Factors to consider when investing in IPO

Before deciding to invest, investors need to carefully consider a number of important factors to accurately assess the potential and risks of the business. Here are important factors to consider before making an investment:

  • Analyze financial statements: Evaluate a business’s financial strength through indicators such as revenue, profit, cash flow and debt ratio to understand profitability and operational efficiency;
  • Evaluate growth potential: Analyze revenue growth rates, profits and expansion plans to forecast business development prospects;
  • Consider the reputation of the board of directors: Evaluate the capacity and experience of management to determine management and strategic decision-making capabilities;
  • Industry and market research: Understand trends, competition levels and growth opportunities in the industry to evaluate the business’s position;
  • Assess financial risks: Identify financial risk factors such as interest rates, exchange rates and debt levels to understand the factors that can affect the financial stability of the business.
Risks that customers need to pay attention to
Risks that customers need to pay attention to

IPO consulting service at Long Phan

Long Phan provides in-depth consulting and support services to investors regarding IPO. With a team of experienced experts, we are committed to supporting customers in solving problems when making investments.

We provide services including:

  • In-depth advice on the advantages and disadvantages of investing through IPO;
  • Consulting to support customers in building effective IPO issuance strategies;
  • Support customers in choosing the IPO issuance method that suits the needs of the business (If any);
  • Consulting and supporting IPO issuance;
  • Support to answer problems that arise throughout the investment process.

Understanding IPOs is an important foundation for every investor. If you need detailed advice on IPO from a team of experts, please contact Long Phan immediately at the hotline: 0906735386 for professional and timely support. We are ready to accompany you to conquer all investment opportunities.