In recent decades, the business landscape has undergone significant transformations, largely due to the increased adoption of technology and automation. Despite these changes, one fundamental aspect of business remains unchanged: the need for capital. Whether it’s to sustain current operations or drive future growth, capital remains essential for every company. To raise capital, companies have various options, including both public and private sources. Among public options, equity IPOs and debt IPOs are the preferred choices for modern corporations.
In this article, we’ll explore:
– The concept of an Equity IPO
– The concept of a Debt IPO
– A comparison between Equity IPOs and Debt IPOs
The concept of an Equity IPO
An equity IPO (Initial Public Offering) is when a privately owned company offers its shares to the public for the first time, making it a public company with shares traded on a stock exchange. The company can choose between a fixed price issue, where shares are offered at a set price, or a book building issue, where a price range is set and investors bid for shares within that range. After the IPO process, shares are allotted and listed on a stock exchange where their prices are determined by market forces.
The concept of a Debt IPO
On the other hand, a debt IPO allows companies to raise capital through debt financing without diluting their ownership. Investors can subscribe to Non-convertible Debentures (NCDs) offered by the company, earning a fixed interest income until the maturity of the debenture. There are two types of NCDs: Secured NCDs, which are backed by the company’s assets, and Unsecured NCDs, which do not have collateral but offer a fixed rate of interest. Investors can apply for NCDs through stockbrokers, and once allotted, NCDs are credited to the investor’s demat account. Most NCDs are listed on stock exchanges for trading after allocation.
A comparison between Equity IPOs and Debt IPOs
Both debt IPOs and equity IPOs are viable options for companies seeking public capital. Equity IPOs often generate excitement with media coverage and speculation about share prices, while debt IPOs offer stable fixed income to investors.
Equity IPO vs. Debt IPO – Overview
In conclusion, debt IPOs and equity IPOs offer distinct benefits, risks, and returns for investors. Understanding the processes and the nature of the underlying securities is crucial before investing. It is advisable to conduct thorough research on the issuing company and carefully study the prospectus and other relevant documents before making any investment decisions.