CAL’s key insights on IPOs – how to take your company public
21 Sep 2015 - {{hitsCtrl.values.hits}}
Capital Alliance, Sri Lanka’s leading full service investment bank, has enabled several companies in the country to prepare for and successfully execute their Initial Public Offering (IPO). CAL celebrates 15 years of success in Sri Lanka this year and is currently the country’s market leader in IPOs, raising Rs.10 billion for clients since 2010.
Providing corporates and investors with an in-depth understanding of how IPOs work and benefit companies, CAL Head of Investment Banking Deshan Pushparajah shares his insights.
Pushparajah is an expert at public and private capital markets, both buy-side and sell-side mergers and acquisitions, and enjoys the trust of an established network of clients in the local and international capital markets. He has been with the CAL group since 2007 and has overseen the Investment Banking unit through a challenging post-conflict period. He has also been instrumental to CAL emerging as a market leader in both equity and debt capital markets. Deshan is a CFA charterholder (USA) and a Fellow Member of both the Chartered Institute of Management Accountants (UK) and the Association of Chartered Certified Accountants (UK).
Understanding what an IPO is and what it entails: Describing an IPO in greater detail, Deshan Pushparajah stated, “An Initial Public Offering, or IPO, is the first sale of stock by a company to the public. In Sri Lanka, an IPO is offered to the public through the Colombo Stock Exchange (CSE).
The investors of an IPO range from local and institutional fund managers to retail investors and corporate clients. The shares continue to trade on the CSE subsequent to the offer. An IPO can take the form of an Offer for Subscription, where the company seeks to raise new funds or an Offer for Sale where an existing shareholder choses to divest part of his holding in the company. Companies can also list on the CSE by way of an Introduction, where no shares are offered to the public but they become tradable subsequent to the same.”
High-profile global and local IPOs
Most of the top 10 global IPOs have all hailed from the Asian region, most recently Alibaba, the diversified e-commerce company went public in 2014 and raised a staggering US $ 25 billion – and became the largest IPO in history. In 2010, the ABC Bank, otherwise known as the Agricultural Bank of China raised US $ 22 billion and ICBC Bank of China, NTT DoCoMo a Tokyo-based telecommunications player, Visa Inc. and AIA, a Hong Kong-based investment and insurance company, all raised over US $ 17 billion with their IPOs. The Facebook IPO in 2012 raised US $ 16 billion and in 2010 General Motors raised US $ 15 billion with its IPO.
Locally, CAL has handled the largest IPOs in Sri Lanka including the largest post-war IPO for People’s Leasing Company PLC which raised Rs.7 billion and IPOs for other leading corporates such as Laugfs Gas PLC, Renuka Agri Foods PLC and Vallibel Finance PLC amongst many others.
IPO benefits
An IPO has benefits for both the company as well as its existing shareholders.The company benefits from gaining an alternate, significant source of equity capital and greater visibility. Outlining the other benefits of an IPO, Pushparajah stated, “Through an IPO, the shareholders of a company benefit from being able to establish a value for the asset they have been instrumental in creating whilst also creating ready liquidity should they wish to monetize part of the same. Listings become a transformative period for most companies and during this time, companies can formalize and lay the foundation for future growth. It also helps family companies deal with succession planning and enables them to attract the best talent to the firm.”
Risk of losing company control through an IPO
Many companies are hesitant to issue an IPO because they fear that they might lose control of the company. Commenting on this Pushparajah stated, “This is a common myth when it comes to listings. For an IPO, you only have to dilute a minimum of 10 percent to the public and at best you can dilute up to 49 percent of the company without losing absolute control of the company. Whilst you will now have other minority shareholders, whose welfare you should always be concerned about, they will always be just that – the minority.”
CAL’s role in an IPO
CAL has been a dynamic force in Sri Lanka’s investment banking and finance arena and has helped many leading corporates to successfully issue IPOs and reach new levels of growth and success.
Commenting on how CAL gets involved in issuing an IPO Pushparajah stated, “Our role is to hold your hand throughout the entire IPO journey and ensure that it goes as smoothly as possible for you. Starting with helping you to structure your company, we also help you put the house in order and prepare the management for public life. We then put together the complex legal documentation required by the Stock Exchange and the SEC on your behalf.
However, the main aspect of our value addition is in helping you place a value on the asset that you have painstakingly created and we thereafter engage with investors to convince them of the future potential of your company. We reach out to investors with varying motivations and those across multiple geographies to ensure that you have a nice mix of partners in your future story.
We don’t stop there though. Subsequent to an IPO, we continue to work with you to ensure a constant engagement with investors and to ensure that the share price fully reflects the present and future success of your company. This will help you return to shareholders even at a later date in order to raise more funds from them.”
How to prepare for an IPO
Outlining what needs to be done to issue an IPO, Pushparajah stated, “The first step is to make the decision to list your company. It is obviously a life-changing one, so we can engage with you from this early stage to prepare you for its implications. Once you make this decision, we can help you navigate the next-steps. Our forte is in family businesses and we have immense expertise in helping them sift through complex family complications in order to deliver the best outcome and ensure the best value for everybody involved.”
CAL is continuously striving to become the preferred partner in financial markets. Having commenced operations in October 2000, CAL has established itself as a leading player in the financial markets of Sri Lanka.
The company specializes in the origination, trading and investment of debt and equity securities and this mix of expertise and services allows CAL to offer integrated and customized solutions to its customers across the entire financial spectrum.
The company strives to build lasting relationships with all of its clients, in order to acquire an in-depth understanding of their needs and goals. In a short period of time, CAL has built a reputation for itself as a market leader by consistently delivering excellence in execution, world-class research and
product innovation.
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