From time to time, you will hear of companies offering IPOs. IPO is a trendy acronym for Initial Public Offering.
IPOs announcements create a buzz in the business world. An IPO is a big investment opportunity that can bring lucrative returns, but it is also a risky affair.
That’s why investing in IPOs requires diligence. Let’s take a deeper look at IPOs in the stock market world and how to buy IPO in Singapore.
What Is IPO (Initial Public Offering)?
An Initial Public Offering (IPO) is the process of a private company offering its shares to the public. A company is usually owned by a small number of stakeholders and private investors.
After years of growth and profitability, a private company can decide to go for an Initial Public Offering after reaching a certain mark. An IPO is simply going public and allowing people outside the company to purchase shares and become shareholders.
With an IPO, an initially private company gets listed on the stock exchange and allows public members to buy its shares, making them shareholders. After an IPO is issued, shares begin trading in the market right away, and anyone can invest. Find out more on the best stocks to invest in Singapore
Why Companies Use IPO
Companies use IPOs for a variety of reasons. When you see a company announce an IPO, note that it could be to:
Raise Capital for Expansion
IPOs are a fast way for companies to raise enough money for expansion and growth.
IPOs are a good option for companies to pay off the debt that may have accumulated during growth.
When new shareholders join a company by investing in an IPO, this brings in money for a company to hire fresh talent and retain old talent.
Enable Founders and Investors To Exit
A company’s founders and early investors contribute a significant amount of time, money, effort, and resources to build and grow the company. An IPO can give them an easy way of exiting.
Boost Profitability and Credibility
When an IPO announcement hits the news, it creates public interest and can quickly turn a not-so-known company into a household name. This publicity can give a company credibility in the eyes of potential clients and investors as their products and services become popular.
Reduce Overall Cost of Capital
Companies usually have a hard time getting money because of high-interest rates from banks, and sometimes they have to give up a percentage of ownership to investors for funding. An IPO can make banks give companies capital at lower interest rates.
Benefits and Risks of Using An IPO
Investing in IPOs in Singapore has benefits and risks for both the company and you as an investor. We have seen how advantageous an IPO can be to a company, but what about you?
Here is how you can benefit:
Be Part of the Company Early
An IPO is a company’s first offer to the public to buy its shares. When you invest in an IPO, you get in on the company’s ongoings early on. Being among the first to invest gives you the privilege of knowing the inner details of the business in its first stages, and you get to support its growth.
Buy Less, Earn More
IPOs are usually low in price. Buying IPO shares can be a profitable investment because the shares you purchased at low prices can skyrocket with the company’s growth and sell for high prices later on.
Meet Your Long-Term Goals Quicker
Investing in Initial Public Offerings can help you meet your long-term goals quicker. When a company you invest in gives you high returns within a short period, you can be able to go on that dream vacation or build that house earlier than you thought.
An IPO will lay down each share’s price, and you can have the surety of the costs involved. Buying the shares later means that prices depend on changing stock market rates and prices.
Risks to the Investor
The most significant risk to you as an investor is share price fluctuations. Some IPOs tend to underperform a short while after going public. That can make the company’s shares plunge and bring about huge losses.
Before trading in IPOs, always read the IPO prospectus carefully. An IPO prospectus is a valuable document with essential details of the company offered to investors.
A prospectus contains offer size, price, dates, risks, company background, and financial conditions. A prospectus can show you whether the IPO is a risk you are willing to take.
Risks of an IPO to the Company
An IPO is a big opportunity for a company to grow and raise capital, but it comes with its downsides like:
1. It’s Expensive
Applying for an IPO can be costly, with underwriting fees, legal fees, registration, and printing fees. Recurring costs can also be expensive, especially for a small company.
2. More Scrutiny
Before being cleared for an IPO, companies go through scrutiny. When released in the news, some information can be disastrous to the company, and investors can even pull out of the company.
3. Added Pressure
An IPO gives a company more pressure to perform because investors need to make a profit. Investors and analysts writing research reports can add pressure to the managers, making them lose control of the company by focusing on short-term gains instead of long-term returns.
Top 5 IPOs in Singapore
Here is a table of some of the top IPOs purchased in Singapore:
|IPO||FOUNDED||SHARE PRICE||SHARES SOLD||AMOUNT RAISED|
|Xiaomi||2010||17HKD||2.18 Million||$4.72 Billion|
|Koufu||2002||0.63SGD||97 Million||$74.3 Million|
|PropNex||2000||0.65SGD||42.5 Million||$38 Million|
|Lyft||2012||$72||32.5 Million||$2.3 Billion|
|Haidilao||1994||$2.27||424 Million||$963 Million|
How to Invest in IPO in Singapore
Thinking of trading in IPO shares in Singapore? You can buy shares using an ATM or mobile banking through internet banking or digibank mobile. Mobile banking is easier and more convenient.
But before we get into the steps, you need a CDP account to invest in IPO in Singapore. CDP is The Central Depository Limited, and it is owned by SGX. The SGX operates CDP accounts and keeps all the data, including clearing, settlement, and depository facilities for security markets. It operates for both stocks and bonds.
A CDP account is like a safe for all your stocks and bonds. Instead of a broker holding them for you when you buy stocks and bonds, the bonds and stocks are automatically deposited and stored in your CDP account.
You can open a CDP account through a brokerage firm offering investment services like Poems. Alternatively, you can download and fill out a CDP application form through the SGX website.
Note that it takes around ten business days for CDP to process your application and mail you login details for the account. It is always advantageous to have a CDP account in advance. When IPOs are announced, they only give a short timeframe.
Having a ready CDP account means that you can go ahead and buy Initial Public Offerings right away instead of first having to wait for your CDP account creation.
Steps to Follow
Here are steps to follow to buy IPO shares through internet banking platforms.
- Log in to your account. Use the internet banking platforms for either DBS, OCBC, or UOB.
- After logging into your internet banking account, go to the “investments” or “invest” tab. Scroll to “More Investments Services.”
- If you are using OCBC, select “Initial Public Offering.” Select “Electronic Shares Application (ESA)” if you are using DBS.
- Fill out the declaration form and state the country of residence.
- Choose the IPO shares you are buying.
Note: Not all IPO shares will be in the internet banking application form. If you don’t see the shares you want, you can use the ATM method.
- Buy the number of shares you need.
- Wait for your application results. IPO results are announced the day after the application closes.
Application Steps Via Digibank Mobile
- Log in to Digibank Mobile. Your account will require your touch, face, or user ID and PIN.
- Click on Invest.
- Select ESA (Electronic Shares Application).
- Select the right boxes to complete the declaration form.
- Choose your country of residence and click next.
- Select the “Securities Counter” you are applying for and click next.
- Read the “Agreement and Prospectus.”
- Click “I Agree.”
- Enter Applications and click next.
- Lastly, verify all details, and click “Confirm” to complete and submit your application.
Important Things to Note
- Each application has a service charge of $2. Whether your application is successful or not, the service charge still applies.
- If your application is unsuccessful or you get partial shares, the remaining amount of unused cash is returned to your savings account.
- To buy a certain amount of shares, you need a similar amount of cash in your savings account. For example, if you want $1000 worth of shares, you need at least $1000 in your savings account. Read more on the best savings account without salary credit in Singapore.
- The cost of shares you are applying for is deducted directly from your savings account.
- You can only make one application per CDP account for any IPO. So even if you have DBS, OCBC, and UOB accounts, you cannot have three different applications for the IPO for each account. Every IPO permits only one CDP account per person.
Investing in IPOs in Singapore can turn into a profitable venture for you as an investor in the long run. You can even apply for IPO financing to be able to purchase initial public offerings.
- To buy IPOs in Singapore, you need a CDP account.
- You can buy IPO in Singapore through Digibank Mobile, internet banking, or ATM.
- IPOs can put a lot of pressure on companies, but they are also very profitable for growth and expansion.
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