What’s in an IPO? Watch out for red flags

Careful study: Investors monitor share market prices at a brokerage in Kuala Lumpur. For investors, it is advisable to analyse the selling shareholders in an IPO.

THE listing of a company on a stock market is a process of selling its shares to public investors via what is typically referred to as an initial public offering (IPO).

For an IPO, there are two alternatives as to how the shares are sold to the public and they are either via a public issue of new shares; or a combination of offer for sale (OFS) of existing shares and public issue of new shares.

An OFS, as the name suggests, is the sale of shares by existing shareholders and hence the proceeds derived from the sale accrues directly to existing shareholders, who are typically promoters of the company too.

As proceeds from a public issue accrues to the company, the company would spell out the utilisation of proceeds from the IPO in its prospectus.