Hey guys, working on a larger set of posts on that I think you're all gonna find interesting. They're not quite ready yet though, so I thought I'd repeat one of my past posts with an even shorter explainer on IPOs. This is especially timely since there are a few that have hit the road already and quite a few more to follow. I know they always generate a lot of questions so let me try to answer a few from early. Let's begin.
An IPO means Initial Public Offering. It's when a company is offering itself to be listed on the stock exchange for the first time ever.
How Much Money Should I Put into Fosrich/Wisynco/Whichever Company?
I can't tell you that. It's up to you. Think about how much money you would (realistically) like to make and act accordingly. Don't be that guy/girl who makes 120% on $6000 and then says, "If me did know...". Further thoughts on this can be found here, but remember my rule of thumb, share price on it's own isn't important, how much you invest is what's important. (Experts, read the linked article before the outrage please.) Information around how much you can buy, the increments in which it can be bought are all set by the listing company and the rules differ with each IPO. To find out what they are, read the prospectus.
How Do I Apply?
Well, before you apply, I urge you to do some research on the company you're buying into. This time the research is even easier because the application form is found in the back of a document called a prospectus. A prospectus has three guaranteed things in it;
1. Information on the company you're trying to buy in to
2. A summary of the offer terms
3. What management intends to do with the money they're trying to raise from the IPO.
These three things make the prospectus a must read! After (or during) reading ask any knowledgeable friend/business adviser/broker any questions that may arise after reading the prospectus.
Is "Company X" a Good Company? I don't want to lose my money enuh...
No one wants to lose their money, don't worry. Company X is likely a good company, and if they're not, they're likely about to become better because of listing, but don't take my word for it. Check for yourself by reading the prospectus. If it doesn't sound good to you, get some other opinions. Again, ask a friend, ask on Twitter, ask your broker (be careful of this last one... Paradoxically, I find that most brokers give poor advice, trust, but verify).
Which Broker Should I Use?
The prospectus said "Broker A" is the lead broker, that means I have to go with them?
No. Often times lead brokers create the impression that you have to open an account with them to participate in an IPO. You do not. They do this in order to get more clients. You can use any broker to participate in any IPO. I'll say that again. YOU CAN BUY INTO ANY IPO ON THE JAMAICA STOCK EXCHANGE USING ANY LOCAL BROKER, NOT JUST THE ONE LEADING THE IPO. Now, there are caveats, and all brokers aren't all created equal. What some lead brokers will do is they will negotiate a reserve amount of shares from the IPO to be given to their clients first. This is a good tactic, sometimes they'll even get a lower price than the price given to the general public. (Looking at you Mayberry...and tipping my hat).
Once again, let me be clear. The above means you can literally give your completed form to your current broker and it's their job to get it over to the lead agency. DO NOT LET THEM TELL YOU TO DO IT YOURSELF! This is part of the service you pay for. Get your money's worth.
What does this mean for you? Well, you have to READ THE PROSPECTUS (this is a common theme, eh?) to see if the lead broker has negotiated any special amounts for you as a client. If they haven't, (and when they have, it is said very clearly so if you've read the prospectus and you're still not clear, they probably have none) then I would recommend going with the broker you are most comfortable with. I wrote a guide to help you with picking a broker, it can be found here, and you can find a list of local brokers here.
What's This "Oversubscribed" I Keep Hearing About?
It's exactly what it sounds like. X amount of slots are offered and XXX amount of offers come in. Just like selling 200 seats on a flight but getting 450 people buying tickets for that flight. In order to keep the offer fair for the general public, all funds and applications are collected but not actually submitted until the "opening date". On that date, if more money has been offered by the general public than was asked for, the company usually splits up the offer among all applicants in order to have everyone get even a small piece of what they applied for. The piece you get may not be huge, but it's considered to be better than nothing.
Is the Offer Going to be Oversubscribed?
I can't read the future, so I can't say definitively, however, these days good companies almost always are. Plan accordingly. The dates for when you'll get your money back, if the offer is oversubscribed, is contained in the prospectus so give it a read. You should also be able to see from there how many shares are being offered to the general public. Rule of thumb, if it's less than $100M worth of shares, in a good or popular company, then expect it to be oversubscribed. You can check the Jamaica Stock Exchange's website to see examples of previous over-subscriptions to get an idea of how it might look, but remember, judge each company on it's own merits.
Will I get any if it's oversubscribed?
Once you have completed and submitted your application on time as mandated, it's very likely that you will get some shares. How many you get is going to be dependent on how many people applied and how much money they applied with. This won't be known till after the application period closes, so keep your eyes peeled on the Jamaica Stock Exchange's website (www.jamstockex.com) and the business section of both local newspapers for updates on the "Basis of Allotment" which will come out after the counting of applications and money is done. Note the JSE is the official forum for this, some business news stories have gotten things like this wrong before, take everything with a grain of salt until confirmed by the JSE.
But I Won't Have Any Money to Invest By the Time the Offer Closes!
Well, that's not much of a question, but I feel your pain. If you won't have the money then you simply won't have the money. However, to paraphrase a friend of mine, good companies don't become bad companies overnight. If you have read the prospectus and decided that the company is a good company, then when you get the money, invest it. Yes, the price might be higher, but if you're investing with a long term view in mind this shouldn't be too bad a problem.
I hope I've covered most of your questions now. If not, feel free to ask any extras you may have on Twitter, I'll be there for a little while answering them. I'm also including links to the prospectuses of the 2 most recent IPOs below and I think I've repeated "read the prospectus" enough times in this article, so go ahead, happy reading!
Here's to making some serious profit for the rest of the year and the year to come!
Prospectus 1: Fosrich IPO - CLOSED - OVERSUBSCRIBED
Prospectus 2: Wisynco IPO - CLOSED - OVERSUBSCRIBED
Prospectus 3: G West - CLOSED - OVERSUBSCRIBED
Prospectus 4: VMIL - CLOSED - OVERSUBSCRIBED
Two IPO questions I've been asked a lot that I thought were clear, lemme try to clear them up.
1. I have to apply BEFORE the Opening date?
Yes. Theoretically no, but practically, yes. Unless an offer is unpopular, Its going to open and close in 1 minute. Get in before that day, meaning complete your forms, get your money together and submit BEFORE the opening date.
2. How will I know how many shares I got?
Official notice on how many shares EVERYONE got will be posted on the JSE's site. You should be told a percentage. e.g. "Applicants got 70% of their applied amount". Your broker should also have finer details.