IPO Roadmap: Guidelines for Raising Funds in the Stock Market

The IPO Roadmap is a crucial guide for companies looking to transition from private to public status. It covers everything from preparing the organizational structure, developing a business plan and financial reporting framework, conducting due diligence, to launching the Initial Public Offering (IPO) and post-listing operations. The goal is to raise capital, enhance credibility, and improve stock liquidity in the stock market. It also involves carefully considering the precautions and benefits of listing on the stock exchange, including selecting underwriters, setting share prices, and conducting public offerings to build investor confidence and long-term interest.

1. The Meaning of IPO and the Importance of Listing

IPO (Initial Public Offering) is the first-time sale of newly issued shares of a public limited company to the public. It is the process by which a private company transforms into a public company and allows the general public to become shareholders through the purchase of stocks.

Companies decide to list on the stock exchange for several reasons:

• Capital Raising: IPO is an efficient way to raise capital, which can be used for business expansion, investment in new projects, or debt repayment.
• Increased Credibility: Being a listed company helps enhance the company's image and credibility in the eyes of customers, partners, and financial institutions.
• Access to Funding: Listed companies can access a wider range of funding sources, both from the capital market and money market.
• Value Creation and Liquidity: Shares of listed companies have higher liquidity, making it easier for shareholders to buy and sell, and they have a clear market value.

Benefits for Companies and Existing Shareholders from Listing on the Stock Exchange:

• Business Opportunities: Being a listed company opens up opportunities for business expansion, creating partnerships, and increasing competitive capabilities.
• Tax Benefits: Listed companies and shareholders may receive tax benefits as stipulated by law.
• Effective Management: Adhering to good governance principles helps improve the efficiency of the company's management systems.
• Long-Term Stability and Growth: Raising funds through an IPO provides the company with sufficient capital for long-term growth.
• Brand Building: Being a listed company enhances brand recognition both domestically and internationally.

The decision to list on the stock exchange is an important step for a company that aims to elevate its business and achieve sustainable growth. However, companies must also consider the readiness and increased responsibilities that come with being a public entity.

2. Preparing for an IPO

Preparing for an IPO is a critical process that companies must carry out carefully and comprehensively in order to be ready for listing on the stock exchange. The key steps include:

1. Improving Organizational Structure

• Organize the ownership and business structure clearly by separating the core business from unrelated activities.
• Appoint a board of directors that meets the stock exchange's criteria, ensuring that at least one-third of the board members are independent directors.
• Establish an audit committee and other subcommittees as appropriate.

2. Preparing a Business Plan and Developing Financial Reporting Structure

• Create a clear business plan that outlines the company's vision, strategies, and long-term growth objectives.
• Develop accounting and financial systems in compliance with financial reporting standards (TFRS).
• Prepare financial statements for the past 2-3 years, audited by a certified auditor approved by the SEC.

3. Conducting Due Diligence

• Perform a thorough review of the company’s legal, financial, and operational status.
• Assess risks and create an effective risk management plan.
• Review and improve internal control systems to ensure they are robust and meet standards.

4. Preparing Personnel and Work Systems

• Develop an investor relations (IR) team to manage communication with investors and the capital market.
• Train employees on the responsibilities of being a listed company and the regulatory compliance required.
• Enhance information technology systems to support data reporting and information disclosure.

5. Selecting a Financial Advisor

• Choose a financial advisor with experience and expertise in the company’s industry.
• Collaborate with the financial advisor to plan the fundraising strategy and determine the appropriate capital structure.

6. Preparing Key Documents

• Prepare a securities registration statement (Form 69-1) and a prospectus.
• Collect essential legal documents and contracts related to the business operations.

Comprehensive and effective preparation will help the company navigate the IPO process smoothly and be well-equipped to handle the challenges of becoming a publicly listed company. Additionally, long-term planning and clear communication with all stakeholders will help build confidence and attract investor interest in participating in the company's growth.

3. Choosing an Underwriter

The underwriter plays a crucial role in the IPO process, acting as an intermediary between the company seeking to raise capital and potential investors. The underwriter assists in setting the offering price, preparing important documents, and distributing shares to investors.

When selecting an underwriter, companies should consider the following criteria:

• Industry Expertise: The underwriter should have a deep understanding of the company’s business and industry.
• Experience and Track Record: Review past performance, particularly in successful IPOs.
• Ability to Price Shares: The underwriter must have the skills to analyze and determine an appropriate offering price.
• Investor Network: The underwriter should have strong relationships with institutional and retail investors.
• Advisory Capabilities: The underwriter must be able to offer guidance throughout the IPO process.

The underwriter helps to make the shares available to the public and distributes them to appropriate investors using various methods, such as:

• Book Building: Collecting interest from institutional investors to determine an appropriate offering price.
• Share Allocation: Determining the proportion of shares to allocate to different types of investors, ensuring that retail investors are sufficiently provided for.
• Roadshows: Presenting the company’s information to investors in key cities to generate interest in the IPO.
• Coordinating with Regulatory Authorities: Assisting the company in complying with regulations set by the SEC and the stock exchange.

Choosing an underwriter with expertise and experience will help ensure a smooth and successful IPO process, enabling the company to meet its fundraising goals and build investor confidence.

4. Steps for Filing a Registration Request

The process of filing a registration request is an important procedure that companies must carry out carefully to enter the stock market. The details are as follows:

1. Preparation of Important Documents

• Prepare financial statements for the past 2-3 years, audited by an auditor approved by the SEC.
• Prepare the Securities Offering Information Form (Form 69-1) and the prospectus.
• Collect important legal documents and contracts related to the business operations.
• Prepare the registration request form and supporting documents to register common shares as listed securities on the stock exchange.

2. Shareholders' Meeting

• Hold a shareholders' meeting to obtain approval for the conversion into a public limited company (if the company has not yet become a public company).
• Seek approval for capital increase and public offering of shares.
• Appoint the board of directors and the audit committee in accordance with the stock exchange criteria.

3. Filing the Request

• Submit the request to the SEC for approval to offer securities along with supporting documents.
• Submit the request for securities registration to the Stock Exchange of Thailand (SET) or the Market for Alternative Investment (mai).

4. Review and Evaluation

• The SEC and the stock exchange will review the documents and the company's qualifications.
• Additional information or clarification on various issues may be requested.

5. Approval and Announcement

• Once approved, the SEC will issue a certification letter allowing the offering of securities.
• The stock exchange will announce the securities as registered securities.

Throughout the process, the company should work closely with financial and legal advisors to ensure that the registration request is completed accurately and efficiently. Careful preparation and strict adherence to regulations will help ensure that the registration process runs smoothly and successfully.

5. Valuing a Company and Setting the Right Initial Stock Price

Valuing a company and determining the appropriate initial stock price are crucial steps in the IPO process. There are several methods and factors to consider, as outlined below:

1. Methods for Company Valuation

• P/E Ratio (Price to Earnings Ratio): This method compares the stock price to earnings per share by using the P/E ratios of companies within the same industry as a benchmark.

• Dividend Discount Model (DDM): This method values a stock based on the present value of expected future dividends.

• Discounted Cash Flow (DCF): This method calculates the present value of projected future cash flows the company expects to generate.

• Comparable Company Method: This method compares financial ratios with similar companies in the same industry.

2. Stock Pricing Using the Book Building Method

Book Building is the process used by underwriters to determine the IPO offer price. The steps involved are as follows:

1. Set an initial price range for the IPO.
2. Invite institutional investors to express interest in buying shares and indicate the price they are willing to pay.
3. Collect the purchase demand data from investors.
4. Analyze the data to set the final offer price that reflects the true value of the company.

This method allows companies to gauge market demand and set a price that better reflects the company's real value.

3. Factors Affecting Pricing Decisions

• Market Conditions: The overall economic climate and stock market volatility impact investor confidence.

• Industry Sector: The trends and growth potential of the industry in which the company operates.

• Financial Performance and Growth Potential: Past performance and future business plans.

• Company Appeal: Innovation, competitive advantage, and effective management.

• Capital Structure: Debt-to-equity ratio and profitability.

• Investor Demand: Feedback from roadshows and book building.

• Regulations and Policies of Regulatory Authorities: Such as SEC guidelines on setting the offer price.

Setting the right IPO price is an art that requires balancing the interests of the company, existing shareholders, and new investors. An excessively high price may lead to lack of investor interest, while an overly low price may result in the company raising less capital than it should. By using a variety of valuation methods and considering different factors, companies can set an appropriate IPO price and increase their chances of successful fundraising.

6. Public Offering

A Public Offering is a key step in the IPO process where a company provides an opportunity for the public to become shareholders through the purchase of stocks. The process includes the following details:

Creating Interest through Marketing Campaigns and Roadshows

• Media Public Relations: Establish an IPO website (or IR Website), a company introduction video, and key information documents for investors.
• Roadshows: Present company information to institutional investors and analysts in key cities to generate interest in the IPO shares.
• Retail Investor Meetings: Organize events to provide information to the general public to build understanding and confidence in the business.
• Online Communication: Use social media and digital platforms to reach new-generation investors.

The Share Subscription Process and Preparation

• Allocation Proportions: Allocate shares between retail investors and institutional investors, ensuring a sufficient allocation to the public based on the established guidelines.
• Institutional Investor Subscription: Conduct Book Building to gather purchase demands and determine the final offering price.
• Retail Investor Subscription: Set the subscription period through appointed securities dealers.
• Payment for Subscription: Investors must pay for their subscriptions using the prescribed method, such as money transfer or automatic account debit.
• Share Allocation: If demand exceeds the available shares, allocation will follow the guidelines specified in the prospectus, such as random allocation or proportional allocation.
• Refunding Subscription Payments: If an investor is not allocated shares, or if the allocation is less than the subscribed amount, the company will refund the payment within a specified period.

The public offering must be conducted under the supervision of the Securities and Exchange Commission (SEC) to ensure sufficient and fair disclosure of information to all investors. The company should focus on building trust and transparency throughout the process to create a strong long-term investor base.

7. Registration and Commencement of Trading on the Stock Exchange

The registration and commencement of trading on the stock exchange is the final critical step in the IPO process, and it includes the following details:

1. Filing a Registration Application: The company must submit a securities registration application to the Stock Exchange of Thailand (SET) or the Market for Alternative Investment (mai) along with supporting documents such as a prospectus, financial statements, and a shareholder distribution report.

2. Application Review: The stock exchange will review the company’s qualifications based on set criteria, such as paid-up capital, financial performance, and the distribution of shares to the public.

3. Approval of Securities Listing: Once the company passes the review, the Securities and Exchange Commission (SEC) will approve the listing of the securities.

4. Announcement of Trading Start Date: The stock exchange will announce the official date for the commencement of trading after the allocation of shares has been completed.

5. Trading Opening Ceremony: On the first day of trading, there will be an official opening ceremony where company executives will ring the bell to mark the market opening.

6. First Day of Trading: Investors can begin trading shares through brokerage firms, following market mechanisms. Share prices may be highly volatile in the early stages.

7. Monitoring and Follow-up: The company must closely monitor the liquidity and trading prices of its shares and communicate with investors to build confidence.

Starting trading on the stock exchange marks the beginning of becoming a public company, which must comply strictly with the regulations and rules of the exchange to maintain its status as a listed company and to instill long-term confidence among investors.

8. Post-IPO Compliance and Responsibilities

After a company is listed on the stock exchange, there are essential duties and responsibilities that must be strictly adhered to in order to maintain its status as a listed company and build investor confidence. These include:

1. Continuous Disclosure

• Disclose any material information that may affect the stock price or investment decisions immediately through the stock exchange's system.
• Prepare and submit quarterly and annual financial reports on time.
• Disclose related party transactions and interconnected transactions according to the prescribed regulations.

2. Reporting Financial Performance and Status

• Hold an analyst meeting to explain the company's financial performance and business operations to shareholders, investors, and other stakeholders at least once a year from the first trading date of the shares.
• Hold an annual general meeting of shareholders within four months of the fiscal year-end.
• Prepare and send the annual report and the annual information statement (Form 56-1 One Report) to shareholders and the SEC.

3. Restructuring and Management

• Maintain the required level of free float (publicly held shares) as prescribed by the stock exchange.
• Implement effective internal control and audit systems.
• Comply with good corporate governance principles.

4. Shareholder and Investor Relations

• Establish an investor relations department as a communication channel with investors and shareholders.
• Treat all shareholders equally, especially in terms of access to information and voting rights.

5. Silent Period Compliance

• Strategic Shareholders are prohibited from selling their shares, which collectively represent 55% of the paid-up capital after the IPO, within one year of the stock being listed. However, they may gradually sell up to 25% of the shares restricted from sale after six months.

Strict adherence to these regulations will help build investor confidence, maintain stock price stability, and foster sustainable growth as a listed company. Furthermore, companies should focus on creating long-term shareholder value by continuously developing their business and being responsible towards society and the environment, in order to meet the expectations of investors and all stakeholders.

About Optiwise

Optiwise offers Investor Relations & ESG consulting services, corporate website design, and IR website development. We also provide advisory services for initial public offerings (IPOs) and the preparation of essential documents for public companies. Additionally, our public relations efforts aim to build credibility and enhance the corporate image.

For more information about Optiwise's services, please contact us here.