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IPO AS AN INSTRUMENT OF ATTRACTION OF FOREIGN INVESTMENT

Автор Доклада: 
Pozdniakova G.
Награда: 
IPO AS AN INSTRUMENT OF ATTRACTION OF FOREIGN INVESTMENT

IPO AS AN INSTRUMENT OF ATTRACTION OF FOREIGN INVESTMENT

Ganna Pozdniakova, student

National University “Kyiv-Mohyla Academy”

 

This article examines Initial Public Offering as one of the most perspective instruments of investing especially nowadays. The author considers the definition of IPO according to different approaches. The main goals of IPO process in the view of the company itself are structured and described. In the article the author allocates the groups of requirements, which are obligatory for the companies in order to be succeeded in IPO results, and considers basic stages of this process. The main advantages and disadvantages of the IPO method of investing are defined.

Keywords: Initial Public Offering (IPO), capital attraction, exchange, international market, transparency.

 

On the way of the development many companies face with the necessity of attraction of financial resources. When expansion of business by means of personal funds (self-financing) becomes impossible already, and the bulks of bank credits turn to be insufficient, then the question of search of long-term and comparatively inexpensive alternative sources of enterprise financing comes. One of the most effective variants, in such case, is capital formation by realization of Initial Public Offering.

The analysis of the last publications and researches testifies that the question of ІРО is not reflected enough in home (Ukrainian) literature. The problems of fund market in Ukraine were investigated by such scientists as V. Kozakov, А. Peresada, О. Mozgoviy, І. Blank, E. Shapovalov, V. Oskolskiy. At the same time, there are practically no Ukrainian researchers, who work exactly on the IPO question.

Thereby, for today there is a problem of theoretical ground and practical recommendations concerning the primary public placing of shares by the Ukrainian companies on international markets.

The author defines the object as definition of ІРО concept, determination of primary purposes and requirements concerning IPO realization, allocation of its stages of realization, and also determination of advantages and lacks of this instrument of capital attraction.

One of methods of attraction of external investments is primary public supply of shares. Taking into account different approaches to the determination of ІРО and modern tendencies of world practice, Initial Public Offering is the public placing of shares of certain issuer at the exchange or over-the-counter securities market, when they are bought by the wide audience of investors. [1, 3]

Now we will proceed to the selection of primary purposes of realization of IPO.

The first aim of the company’s ІРО is attraction of large financial capital on long-term basis. From data of company DAGDA, based on the results of the first wave of IPO- boom, the Ukrainian issuers attracted from abroad through 60 private and public placements about 6 milliards of US dollars.

The next aim, for the sake of what company succeeded to ІРО, is an objective estimation of enterprise value. This objectivity is predefined by company’s entry on a new level, which is to the international market.

The third aim deals with the positioning of company as public institute. Company, whose shares quoted on international exchanges, is interpreted as a serious partner, because by executing all requirements of ІРО, company becomes "transparent" and clear to all potential investors.

Thus, before making a decision about IPO entry, company must realize its accordance to the certain requirements that can be divided into three basic groups:

1. Requirements to the financial reporting. It means that a company must answer international standards during at least last three years and to pass an audit, thus necessarily one of companies "The Big Three".

2. Transparency of company’s control circuit and chart of its property. The matter is about clear distribution of plenary powers of management of all links.

3. Defence of investor’s rights. Key proprietors should line up the chart of business management, which would not cause suspicions for investors.

From the beginning of IPO preparation to the actual placing of shares, as a rule, it takes some time – from one and a half to three years. Conditionally this process can be divided into such stages [2, 4]:

1) preparatory stage (before placement), during which the command of participants of IPO, partners sneaks up, a trade ground is elected, the plan of actions and configuration of IPO is agreed; formal decisions are accepted by the organs of issuer and formal documents are created; an advertising campaign is started; due – diligence is held and others like that.

2) main stage, when shares are directly issued on an exchange.

3) final stage (after placement) that deals with the estimation of IPO success and further regular prosecution of the company’s "publicity".

It is possible to distinguish basic advantages and disadvantages of ІРО as an instrument of attraction of investment capital (table 1):

 

Table 1

Advantages and disadvantages of ІРО

Advantages

Disadvantages

Receipt of considerable capital on long-term basis

Large charges on preparation, direct realization and further support

Objective estimation of business cost

Access to the new capital
markets

Lost of confidentiality of information, opening of property structure

Liquidity of property

Increase of image

Successes depend on the scales of company and exceptionally on the financial attractiveness of assets

Optimization of corporate structure

Summarizing before mentioned, it is possible to make the following conclusions:

- ІРО is a perspective instrument of attraction of investment capital and possibility of companies of international markets entry;

  • business transparency and financial attractiveness of company’s assets are a guarantee of successful emission at the exchange market;

- as any method of investments, ІРО has different advantages and disadvantages which are predefined by nature of this instrument.

Consequently, success of company’s IPO depends on many factors and implementation of plenty of requirements. But the majority of them are nothing other as “healthy” principles of doing business. That is why doing ІРО a company not only gets necessary investments but also "revitalizes" its own business.

 

Bibliography:

  1. Костенко Н., Євтушенко Н. Первинна публічна пропозиція акцій (IPO) як спосіб виходу компанії на світові фондові ринки // Схід. – №4 (76)

  2. Ritter, Jay R., Ivo Welch. "A Review Of IPO Activity, Pricing, And Allocations," Journal of Finance, 2002, v57(4,Aug), 1795-1828.

  3. Шлык П.В. Экономическая сущность первичного публичного размещения акций // Представительная власть. Законодательство, Комментарии, Проблемы. — 2007. — Вып. № 1 (74).

  4. IPO от А до Я: справочник эмитента // Рейтинговое агентство «Эксперт-Рейтинг». — Киев, Украина. — Декабрь, 2007.

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The analysis

Scientific research is ascertaining the nature. Findings are adequate. Report deserves the attention of scientists and practitioners.
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