Sebi mulls separate days for retail, investors for IPOs

In what could be a major overhaul of the way public offers are conducted, market regulator SEBI is mulling over a possible demarcation of days to be given to retail and institutional investors for submitting their bids.As part of efforts to attract more retail investors to the stock market, SEBI is considering a proposal wherein the institutional investors would be first asked to submit their bids, possibly in the first two days, and then the remaining two days would be open only for retail investors, provided the IPO is open for four days.
The move is being considered because retail investors have been traditionally following the cues from the demand generated among the large institutional investors and put in their bids on the last day, but in the recent IPOs the institutional investors have also been seen waiting till the last moment.

Oil fell for a third straight day on Thursday to hit a 22-month low of $55 a barrel as mounting pessimism about the global economy

Why oil prices hit a record high

outweighed OPEC's comments that it could cut output again as early as end-November. OPEC officials, concerned about oil's steep drop from record highs over $147 a barrel per day (bpd) in July, said the cartel could possibly decide by the end of the month to cut production again to raise prices. But comments from the producer group failed to lift oil prices
, as investors focused on near-term demand worries after the US Energy Information Administration (EIA) slashed America's 2008 oil demand outlook and the International Energy Agency (IEA) flagged further reduction in its oil forecast. US light crude for December delivery was down 81 cents at $55.35 a barrel by 0259 GMT, after having fallen earlier to $55.03 -- the lowest since Jan. 29, 2007. London Brent crude fell 41 cents to $51.96 in early Asian trade. "Oil prices continue to be pressured by fears that weaker international economic growth will depress oil consumption," said David Moore, an analyst at the Commonwealth Bank of Australia. Oil fell 5 percent overnight, along with a big drop in U.S. stock markets, after the U.S. government shifted its position on how it planned to use its $700 billion bailout fund, which added uncertainty to financial markets and renewed fears of a protracted global recession.

source: economic times

Gold extends gains as equities slip

Gold rose further on Wednesday after declines in stock markets gave speculators an excuse to buy the metal seen as an alternative investment.
Gold traded at $842.90 an ounce, up $7.65 from New York's notional close. Gold jumped 2% to an intraday high of $853.50 on Tuesday before trimming gains after the United States unveiled plans to take stakes in its biggest banks.
Japan's Nikkei slipped 0.6% on Wednesday, a day after its biggest one-day gain in history; with exporters down as US stocks fell on worries about the global economy.
The US unveiled plans to take equity stakes worth up to $250 billion in financial institutions, an incursion into the private sector that US officials called a regrettable last resort.
Platinum traded at $1,010 an ounce, down $7.50 an ounce from New York's notional close. It hit a two-week high of $1,040 on Tuesday, mainly due to buying from investors in Japan.
New York gold futures GCZ8 rose $7.2 an ounce to $846.7 an ounce on safe-haven buying.

Yen rises in Asia on renewed risk aversion

The yen rose in Asia on Wednesday as players refrained from risky bets after a global stock market rally fizzled out amid concerns about the
economic impact of the credit crunch. The dollar slipped to 101.73 yen in Tokyo morning trade from 102.01 yen late Tuesday in New York. The euro fell to 137.77 yen after 139.05, and to 1.3570 dollars from 1.3618. "Investors remain cautious, although panic selling (on global stock markets) seems to have subsided," said Mizuho Corporate Bank analyst Masaki Fukui. Players bought the yen as the currency is seen as a relatively safe haven amid the financial crisis, dealers said. The Japanese currency tends to rise in times of market turmoil as it has been heavily sold in the past to fund risky investments. "Worries over banks' bankruptcies are gone, so there will be no panic yen-buying anymore," Shinkin Central Bank senior dealer Hiroshi Yoshida told Dow Jones Newswires. "But players are pessimistic about the global economy ahead. The yen will likely appreciate gradually in the long-term," he said. Tokyo stocks were slightly lower in morning trade Wednesday after a Wall Street rally faded overnight. US authorities pushed forward with a plan to inject up to 250 bn dollars in capital into struggling banks. Janet Yellen, the head of the San Francisco branch of the Federal Reserve, said that the United States "appears to be in a recession." Barclays Capital analysts predicted the dollar would fall back below 100 yen by the end of the year because it will take time for the US authorities to resolve the credit crunch.

Review of External Commercial Borrowings (ECB) Policy

SOURCE: FINANCE MINISTRY

The External Commercial Borrowing (ECB) policy is regularly reviewed by the Government in consultation with Reserve Bank of India (RBI) to keep it in tune with the evolving macroeconomic situation, changing market conditions, sectoral requirements, etc.
2. At present borrowers are allowed to avail ECBs up to USD 500 million under the Automatic Route for import of capital goods and overseas acquisition. In May 2008, it was decided to allow companies to borrow USD 50 million for Rupee Capital expenditure under the Approval route. Similarly, companies in the infrastructure sector are allowed to avail upto USD 100 million for Rupee capital expenditure under the Approval Route.
3. On a review, it has been decided to further liberalise the ECB policy as under:
i) At present, borrowers in infrastructure sector are allowed to avail ECB up to USD 100 million for Rupee expenditure for permissible end-uses under the Approval Route. Considering the huge funding requirements, particularly for meeting Rupee expenditure, it has been decided to enhance the existing limit of USD 100 million to USD 500 million per year for the borrowers in the infrastructure sector under the Approval Route. Borrowings in excess of USD 100 million should have a minimum average maturity of 7 years.
ii) In view of widening credit spreads in the International financial markets, it has been decided to modify the all-in-cost ceilings in respect of ECBs with minimum average maturity of over seven years. The revised all-in cost ceilings for ECBs will now be:
Average Maturity Period All-in-Cost ceilings over 6 Months LIBOR Existing Revised Three years andup to five years 200 bps 200 bps More than five yearsand up to seven years 350 bps 350 bps More than seven years 350 bps 450 bps
4. As regards companies other than those in infrastructure sector the decision of May 2008, to allow them to borrow upto USD 50 million for Rupee Capital expenditure under the Approval route, remains unchanged.
5. All other aspects of ECB policy such as USD 500 million limit per company per year under the Automatic Route, eligible borrower, recognised lender, end-use of foreign currency expenditure for import of capital goods and overseas investments, average maturity period, prepayment, refinancing of existing ECB and reporting arrangements also remain unchanged.
6. The above amendments in ECB policy will come into force on the date of Notification of Regulations / directions issued by the Reserve Bank in this regard under the Foreign Exchange Management Act, 1999.

Govt relaxes ECB norms for infra firms

The government has relaxed external commercial borrowing (ECB) rules for infrastructure firms, and they will now be allowed to bring in $500 million under the approval route. ECBs of over $100 million has to be for at least for seven years.The interest rate cap on ECBs of over seven years has been raised by 100 bps. The ECB limit on non-core sector firms is unchanged at $50 million. The new rules will come into effect after the RBI gives its nod.Earlier in the day, Department of Economic Affairs (DEA) Secretary Ashok Chawla said the government was planning to relax the ECB norms in view of the unfolding global scenario.The easing of norms, he added, will help industry, especially the infrastructure sector, to access cheap funds overseas in view of the hardened interest rate situation in the domestic market.UTVi Analysis:
Move seen as a double measure to strengthen rupee and provide liquidity for needy sectors
Analysts say post advance tax numbers, banks are running out for lending surpluses for corporate sector
Govt investment programme for 11th Five year plan in jeopardy as capital flows drying
Earlier, govt had tightened ECB norms to $20mn for rupee expenditure
In May this year this was relaxed to $100mn for Infra and $50mn for other sectors
Last year owing to huge capital flows rupee had strengthened to 39/$ levels
Reports say govt may relax norms to increase cap for rupee expenditure for Infra sectors
Currently ECB of upto $100mn allowed for rupee expenditure in infra sector
For other sectors the limit is $50mn

What is ‘IPO Grading’?

IPO grading is the grade assigned by a Credit Rating Agency registered with SEBI, to the initial public offering (IPO) of equity shares or any other security which may be converted into or exchanged with equity shares at a later date. The grade represents a relative assessment of the fundamentals of that issue in relation to the other listed equity securities in India. Such grading is generally assigned on a five-point point scale with a higher score indicating stronger fundamentals and vice versa as below.
IPO grade 1: Poor fundamentals
IPO grade 2: Below-average fundamentals
IPO grade 3: Average fundamentals
IPO grade 4: Above-average fundamentals
IPO grade 5: Strong fundamentals
IPO grading has been introduced as an endeavor to make additional information available for the investors in order to facilitate their assessment of equity issues offered through an IPO.

Global Depositary Receipt

A negotiable certificate held in the bank of one country representing a specific number of shares of a stock traded on an exchange of another country. American Depositary Receipts make it easier for individuals to invest in foreign companies, due to the widespread availability of price information, lower transaction costs, and timely dividend distributions. also called European Depository Receipt

External Commercial Borrowings (ECB)

External Commercial Borrowings (ECBs) include bank loans, suppliers' and buyers' credits, fixed and floating rate bonds (without convertibility) and borrowings from private sector windows of multilateral Financial Institutions such as International Finance Corporation. Euro-issues include Euro-convertible bonds and GDRs. In India, External Commercial Borrowings are being permitted by the Government for providing an additional source of funds toIndian corporates and PSUs for financing expansion of existing capacity and as well as for fresh investment, to augment theresources available domestically. ECBs can be used for any purpose (rupee-related expenditure as well as imports) except for investment in stock market and speculation in real estate.

External Commercial Borrowings (ECB) are defined to include commercial bank loans, buyer’s credit, supplier’s credit, securitised instruments such as floating rate notes, fixed rate bonds etc., credit from official export credit agencies, commercial borrowings from the private sector window of multilateral financial institutions such as IFC, ADB, AFIC, CDC etc. and Investment by Foreign Institutional Investors (FIIs) in dedicated debt funds Applicants are free to raise ECB from any internationally recognised source like banks, export credit agencies, suppliers of equipment, foreign collaborations, foreign equity - holders, international capital markets etc.

REGULATOR

The department of Economic Affairs, Ministry of Finance, Government of India with support of Reserve Bank of India, monitors and regulates Indian firms access to global capital markets. From time to time, they announce guidelines on policies and procedures for ECB and Euro-issues. The important aspect of ECB policy is to provide flexibility in borrowings by Indian corporates, at the same time maintaining prudent limits for total external borrowings. The guiding principles for ECB Policy are to keep maturities long, costs low, and encourage infrastructure and export sector financing which are crucial for overall growth of the economy.

US MARKETS RALLY ON FED RESCUE PLAN

Sweeping government measures to rescue the financial system and restore confidence in shaky markets spurred a huge relief rally in US stocks on Friday, ending a week that saw the most dramatic reshaping of the financial landscape since the Great Depression.
Led by Treasury Secretary Henry Paulson, officials are working on a solution to take over hundreds of billions of dollars worth of lethal mortgage debt.
In another extraordinary action, the United States joined the United Kingdom in temporarily banning bets that financial stocks will fall and said it will use $50 billion to back money-market mutual funds. Short sellers, who profit when stocks fall, have been blamed for contributing to the demise of Lehman Brothers and the steep declines in other financial stocks this year.
Based on the latest available data, the Dow Jones industrial average .DJI was up 368.75 points, or 3.35 %, to end unofficially at 11,388.44. The Standard & Poor's 500 Index .SPX was up 48.15 points, or 3.99 %, to finish unofficially at 1,254.66. The Nasdaq Composite Index was up 74.80 points, or 3.40 %, to close unofficially at 2,273.90.

M&A, PE deals cross $5.57-b mark

After a quiet July, dealstreet was again buzzing with action in August. The total value of mergers and acquisitions(M&A) and private equity(PE) deals during the month is pegged at more than $5.57 billion against a mere $1.23 billion in July’08. Though this has largely to do with large M&A transactions, even PE deal value jumped almost 50%. While the number of M&A transactions actually dropped compared to July, the total value of deals rose sharply month-on-month. The total number of M&A deals announced during August stood at 31 with an announced value of $4.63 billion against 43 deals amounting to $580 million during July 2008, according to the latest dealtracker of advisory firm Grant Thornton. Among the top M&A deals during the month was ONGC’s acquisition of Imperial Energy Plc followed by Infosys Technology’s announcement to acquire UK based Axon and CBay Systems deal for MedQuist. In total, there were nine domestic deals where both the acquirer and the target were Indian firms, with an announced value of $80 million. In addition there were 22 cross-border M&A deals with an announced value of $ 4.55 billion. Out of this, 17 were outbound deals worth $4.48 billion involving Indian companies acquiring business overseas and five were inbound deals where multinational firms picked stake in domestic companies for $ 80 million. This takes the total value of M&A deals during the first eight months of 2008 to $22.74 billion spread over 346 transactions. During the same period last year India Inc had recorded 456 deals amounting to $ 48.23 billion. However, this value was skewed due to the three multi-billion dollar deals: Tata-Corus, Vodafone-Hutch Essar and Hindalco-Novelis. While M&A deals jumped in value even with fewer transactions, PE deals managed to grow during August in both volume and value terms compared to July. There were 31 PE deals during the month with an announced value of $ 944 million as against 29 deals amounting to $ 650 million in July. The sectors where PE firms were most active last month include pharma, healthcare & biotech, real estate & infrastructure management besides IT & ITeS. The three top PE transactions included MPC Synergy’s deal with Phoenix Mills, Baring Private Equity Asia- RSP Architects & Planners besides Oman Investment Fund picking a minority stake in Quippo Telecom. This takes the total number of PE deals during the January-August’08 period to 246, with an announced value of $ 8.69 billion as against 260 deals worth $ 10.74 billion during the corresponding period in 2007.

SOURCE:ECONOMIC TIMES

Oil hits 7 months low on context of fall of lehman bros.

Oil prices slumped nearly $3 to a seven-month low on Tuesday as the collapse of Lehman Brothers ignited fears that the credit crisis may weaken the global economy and further depress energy demand.
Reports that Hurricane Ike caused minor damage to the United States' oil platforms and refineries also weighed on prices, adding to the previous session's more than $5 fall and down almost 37-% fall from its peak of over $147 in mid-July.
US light crude for October delivery CLc1 fell $2.88 to $92.85 a barrel by 0148 GMT. And London Brent crude LCOc1 fell $2.84 to $91.40 a barrel at 0112 GMT.
"Lehman Brothers' failure has magnified existing worries about the international economic outlook, adding to fears of slower demand for commodities," said David Moore, commodity strategist at Commonwealth Bank of Australia.
"Early reports suggest that Hurricane Ike ... caused only limited structural damage to oil infrastructure," he added.
On Monday, Wall Street had its worst day since markets reopened after the September 11 attacks, with investors fleeing to safer havens such as gold.
Lehman Brothers' bankruptcy, the sale of Merrill Lynch and the struggle of American International Group all stirred fears about the US financial sector's stability and the outlook for the global economy.
Following crude oil sharp losses -- down 20 % since the start of the month -- technical analysts now focused on support below $90 a barrel and into the $85 to $80 a barrel region for the next leg lower.
A big chunk of US energy production shut by Hurricane Ike could restart within a week, with the only reports of damage to refineries so far included Shell's Deer Park Plant and ConocoPhillips' Alliance refinery.
Nigerian militants on Monday attacked oil facilities, killing a guard and forcing evacuation of nearly 100 workers; in a third day of fighting with security forces that has disrupted oil output.
Traders are eyeing US consumer price data at 1230 GMT as well as the minutes of the Federal Open Market Committee for any further sign of bad news in the US economy.
The market is also looking ahead to Wednesday's US oil stocks data, expected to show a 3.4 million barrel draw down in crude inventories, a 2.0 million barrel drop in distillate supplies and a 4.0 million barrel decline in gasoline stocks.

Bank of America to buy Merrill for $50bn

Bank of America Corp said it agreed to buy Merrill Lynch & Co Inc in an all-stock deal worth $50 billion, snagging the world's largest retail brokerage after one of the worst-ever weekends on Wall Street."It catapults Bank of America into positions of strength in three businesses where they were weak," said James Ellman, portfolio manager at hedge fund Seacliff Capital."Now Bank of America has one of the best and largest retail brokerages in the country, one of the top investment banks in the world, and a large stake in one of the best investment managers in the world," Ellman said.Bank of America agreed to pay 0.8595 shares of Bank of America common stock for each Merrill Lynch share. The price is 1.8 times stated tangible book value.The bank is buying about $44 billion of Merrill's common shares, as well as $6 billion of options, convertibles, and restricted stock units.Bank of America said it expects to achieve $7 billion in pre-tax expense savings, fully realised by 2012, and expects the deal to be accretive to earnings by 2010. The transaction is expected to close in the first quarter of next year.The price, which comes to about $29 per share, represents a 70% premium to Merrill's share price on Friday, although Merrill's shares were trading at $50 in May and over $90 at the beginning of January 2007.The deal has been approved by directors of both companies. Three Merrill directors will join the Bank of America board.Stuck with some of the same toxic debt - much of it mortgage-related - that torpedoed Lehman's balance sheet, Merrill has been hit hard by the credit crisis and has written down more than $40 billion over the last year.Last month, Thain arranged to sell over $30 billion in repackaged debt securities to Dallas-based private equity firm Lone Star Funds for 22 cents on the dollar.In spite of its exposures to complex debt securities, the bank had seen by some as undervalued, in part because of its massive brokerage business, which analysts have said is worth more than $25 billion. The brokerage is the largest in the world by assets under management and number of brokers.Merrill also has a stake of about 45% in the profitable asset manager BlackRock Inc, worth more than $10 billion."It could be a powerful fit," said Rick Meckler, chief investment officer at LibertyView Capital Management in New York, before news of the deal emerged.DUE DILIGENCEStill, there are risks for BofA, which had little time to complete due diligence of Merrill's books, a particular concern given the company's exposure to mortgage-related securities and other complex debt."While we view this clearly as a long-term positive for (Bank of America), the stock will likely not respond accordingly as investors near term will focus on greater systemic risk," Oppenheimer & Co analyst Meredith Whitney said in a report on Sunday.With the brokerage and the BlackRock shares worth more than $35 billion combined, and Merrill's market capitalisation at around $26 billion on Friday, investors had been ascribing a negative value to the investment bank, implying huge potential embedded losses.
But this is not the first time Bank of America has done a quick acquisition. In 2005, the bank bought credit card company MBNA after less than a week of due diligence, with Lewis saying the company was comfortable with the acquisition because it knew the people and business well.
Bank of America under Lewis has in fact become renowned for large acquisitions and it has spent over $100 billion since 2004 buying other companies.
Most recently it acquired troubled mortgage lender Countrywide Financial Corp and - although many were skeptical about this purchase -- veteran analyst Dick Bove said last week the takeover could prove to be a master stroke by Lewis, since the government takeover of mortgage agencies Fannie Mae and Freddie Mac could fuel business for other lenders.
Bank of America was advised by JC Flowers & Co, Fox-Pitt Kelton Cochran Caronia Waller and Bank of America Securities. It was represented by Wachtell, Lipton, Rosen & Katz. Merrill Lynch was represented by Shearman & Sterling.

Deutsche Bank to buy 30% in Postbank for $4b

DEUTSCHE Bank agreed to buy almost 30% of Deutsche Postbank for 2.79 billion ($3.93 billion) in the country’s fourth financial-services acquisition in two months. The bank will pay 57.25 a share in cash for the holding, 25% more than Thursday’s closing price, Deutsche Bank said. Deutsche Bank has an option to buy an additional 18% of Postbank within three years for 55 a share. The purchase will make Deutsche Bank the largest investor in Postbank, the country’s biggest bank by customers, and thwartacompetingbidbyBancoSantander. By buying all of Postbank, CEO Josef Ackermann will more than double his consumer banking customers to about 24 million in Germany and fulfill a promise to cut dependence on investment banking. Deutsche Post CEO Frank Appel, 47, is selling Postbank to focus on mail, express deliveries and logistics. The purchase of the 29.75% stake is also a counterpunch to Commerzbank which agreed to buy Allianz’s Dresdner Bank for
9.8 billion less than two weeks ago to leapfrog Deutsche Bank by clients and branches. Postbank fell 1.77 to 44 by 1:04 pm in Frankfurt trading, valuing the company at 7.2 billion

Process of REVERSE IPO

Reverse takeover (reverse IPO) is the acquisition of a public company by a private company to bypass the lengthy and complex process of going public. The transaction typically requires reorganization of capitalization of the acquiring company.In a reverse takeover, shareholders of the private company purchase control of the public shell company and then merge it with the private company. The publicly traded corporation is called a "shell" since all that exists of the original company is its organizational structure. The private company shareholders receive a substantial majority of the shares of the public company and control of its board of directors. The transaction can be accomplished within weeks. If the shell is an SEC-registered company, the private company does not go through an expensive and time-consuming review with state and federal regulators because this process was completed beforehand with the public company.
The transaction involves the private and shell company exchanging information on each other, negotiating the merger terms, and signing a share exchange agreement. At the closing, the shell company issues a substantial majority of its shares and board control to the shareholders of the private company. The private company's shareholders pay for the shell company by contributing their shares in the private company to the shell company that they now control. This share exchange and change of control completes the reverse takeover, transforming the formerly privately held company into a publicly held company.

Benefits of REVERSE IPO

The advantages of public trading status include the possibility of commanding a higher price for a later offering of the company's securities. Going public through a reverse takeover allows a privately held company to become publicly held at a lesser cost, and with less stock dilution than through an initial public offering (IPO). While the process of going public and raising capital is combined in an IPO, in a reverse takeover, these two functions are separate. A company can go public without raising additional capital. Separating these two functions greatly simplifies the process.
In addition, a reverse takeover is less susceptible to market conditions. Conventional IPOs are risky for companies to undertake because the deal relies on market conditions, over which senior management has little control. If the market is off, the underwriter may pull the offering. The market also does not need to plunge wholesale. If a company in registration participates in an industry that's making unfavorable headlines, investors may shy away from the deal. In a reverse takeover, since the deal rests solely between those controlling the public and private companies, market conditions have little bearing on the situation.
The process for a conventional IPO can last for a year or more. When a company transitions from an entrepreneurial venture to a public company fit for outside ownership, how time is spent by strategic managers can be beneficial or detrimental. Time spent in meetings and drafting sessions related to an IPO can have a disastrous effect on the growth upon which the offering is predicated, and may even nullify it. In addition, during the many months it takes to put an IPO together, market conditions can deteriorate, making the completion of an IPO unfavorable. By contrast, a reverse takeover can be completed in as little as thirty days.
Additionally, many shell companies carry forward what is known as a tax-loss. This means that a loss incurred in previous years can be applied to income in future years. This shelters future income from income taxes. Since most active public companies become dormant public companies after a string of losses, or at least one large one, it is more likely that a shell company will offer this tax shelter.
It is highly unusual to preserve any benefit from the tax loss carry forward in a shell company. The tax regulations normally reduce the loss carry forward by the percentage of the change in control. In a well structured reverse merger, the private company should end up with 95% or more of the stock after the merger, thus reducing the tax loss carry-forward by this amount.

Drawbacks of REVERSE IPO

Reverse takeovers always come with some history, and some shareholders. Sometimes this history can be bad, and manifest itself in the form of currently sloppy records, pending lawsuits and other unforeseen liabilities. Additionally, these shells may sometimes come with angry or deceitful shareholders who are anxious to "dump" their stock at the first chance they get. One way the acquiring or surviving company can safeguard against the "dump" after the takeover is consummated, is by requiring a lock-up on the shares owned by the group they are purchasing the public shell from, otherwise there very likely will be a stock dump. Other shareholders that have held stock as investors in the company being acquired pose no threat in a dump scenario because the number of shares they hold is not significant and, unfortunately for them, they are likely to have the number of shares they own reduced by a reverse stock split that is not an uncommon part of a reverse takeover. Possibly the biggest caveat is that most CEO's are naive and inexperienced in the world of publicly traded companies, unless they have past experience as an officer or director of a public company.
A major disadvantage of going public via a reverse merger is that such transactions rarely introduce liquidity to a previously private stock unless there is bona fide public interest in the company. Without decent analyst coverage, many reverse merger companies end up relegated to the OTC market (also called the pink sheets), and never end up giving holders of the formerly private company the liquidity they expect. While probably an overstatement, there is an adage on Wall Street that companies which use reverse mergers to gain a stock exchange listing or quotation are doing so not because it is convenient, but rather because it is their only real choice. Whether this sentiment is valid, it has a significant and adverse impact on the perception of reverse merger companies among Wall Street analysts and other investment professionals. In other words, whether you are a private company that is being talked into such a transaction by investment bankers or a retail investor who keeps getting calls from brokers trying to pawn off shelf company shares, buyer (and seller) beware.

Future financing in reverse IPO

The greater number of financing options available to publicly held companies is a primary reason to undergo a reverse takeover. These financing options include:
The issuance of additional stock in a secondary offering
An exercise of warrants, where stockholders have the right to purchase additional shares in a company at predetermined prices. When many shareholders with warrants exercise their option to purchase additional shares, the company receives an infusion of capital.
Other investors are more likely to invest in a company via a private offering of stock when a mechanism to sell their stock is in place should the company be successful.
In addition, the now-publicly held company obtains the benefits of public trading of its securities:
Increased liquidity of company stock
Higher company valuation due to a higher share price
Greater access to capital markets
Ability to acquire other companies through stock transactions
Ability to use stock incentive plans to attract and retain employees

Initial public offering

Initial Public Offering (IPO), also referred to simply as a "public offering", is when a company issues common stock or shares to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded.
In an IPO, the issuer may obtain the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), best offering price and time to bring it to market.
IPOs can be a risky investment. For the individual investor, it is tough to predict what the stock or shares will do on its initial day of trading and in the near future since there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, and they are therefore subject to additional uncertainty regarding their future value.

When a company lists its shares on a public exchange, it will almost invariably look to issue additional new shares in order to raise extra capital at the same time. The money paid by investors for the newly-issued shares goes directly to the company (in contrast to a later trade of shares on the exchange, where the money passes between investors). An IPO, therefore, allows a company to tap a wide pool of stock market investors to provide it with large volumes of capital for future growth. The company is never required to repay the capital, but instead the new shareholders have a right to future profits distributed by the company and the right to a capital distribution in case of a dissolution.
The existing shareholders will see their shareholdings diluted as a proportion of the company's shares. However, they hope that the capital investment will make their shareholdings more valuable in absolute terms.
In addition, once a company is listed, it will be able to issue further shares via a rights issue, thereby again providing itself with capital for expansion without incurring any debt. This regular ability to raise large amounts of capital from the general market, rather than having to seek and negotiate with individual investors, is a key incentive for many companies seeking to list

Procedure of bringing IPO

IPOs generally involve one or more investment banks as "underwriters." The company offering its shares, called the "issuer," enters a contract with a lead underwriter to sell its shares to the public. The underwriter then approaches investors with offers to sell these shares.
The sale (that is, the allocation and pricing) of shares in an IPO may take several forms. Common methods include:
Dutch auction
Firm commitment
Best efforts
Bought deal
Self Distribution of Stock
A large IPO is usually underwritten by a "syndicate" of investment banks led by one or more major investment banks (lead underwriter). Upon selling the shares, the underwriters keep a commission based on a percentage of the value of the shares sold. Usually, the lead underwriters, i.e. the underwriters selling the largest proportions of the IPO, take the highest commissions—up to 8% in some cases.
Multinational IPOs may have as many as three syndicates to deal with differing legal requirements in both the issuer's domestic market and other regions. For example, an issuer based in the E.U. may be represented by the main selling syndicate in its domestic market, Europe, in addition to separate syndicates or selling groups for US/Canada and for Asia. Usually, the lead underwriter in the main selling group is also the lead bank in the other selling groups.
Because of the wide array of legal requirements, IPOs typically involve one or more law firms with major practices in securities law, such as the Magic Circle firms of London and the white shoe firms of New York City.
Usually, the offering will include the issuance of new shares, intended to raise new capital, as well the secondary sale of existing shares. However, certain regulatory restrictions and restrictions imposed by the lead underwriter are often placed on the sale of existing shares.
Public offerings are primarily sold to institutional investors, but some shares are also allocated to the underwriters' retail investors. A broker selling shares of a public offering to his clients is paid through a sales credit instead of a commission. The client pays no commission to purchase the shares of a public offering; the purchase price simply includes the built-in sales credit.
The issuer usually allows the underwriters an option to increase the size of the offering by up to 15% under certain circumstance known as the greenshoe or overallotment option.