IPO stands for Initial Public Offering.

When a few people come together to start a company, they would pool their funds together. Rather than recording the amount of money contributed, pieces of paper with a fixed value are allocated to them. These pieces of paper are known as shares or stock or equity. These type of companies are known as private corporations. What that means is that the shares are held by a small group of people who do not intend to trade the shares.

When a private corporation reaches a certain level of achievement or growth, some of the shareholders would want to sell of their stake in the company. The easiest way to do that would be to organise an IPO. Starhub was such an example. Their IPO consisted solely of vendor shares (which is another name for shares which are currently held by investors). The other reason why companies organise an IPO is to expand the company. Usually for such cases, companies have reached a certain plateau in growth, and in order to grow further, they would need to do aggressive expansion, which would involve large amounts of money. Such IPOs involve primarily new shares, which will usually raise a substantial amount of money for the company.

Before an IPO can take place, a prospectus have to be filed with the Monetary Authority of Singapore. At that time, the public would be able to access the prospectus from either MAS Opera or SGX New Listings. In a prospectus, typical information you should look out for includes the mix of new shares VS vendor shares, the amount of placement shares VS offer shares, the purpose of the proceeds (for working capital, paying off debts, expansion overseas, or various other reasons), and also the financial statements of the company.

 When there is a large amount of vendor shares VS new shares, it is usually a sign that the current shareholders want to get out. Reasons could be that the company is not as fantastic as what is written in the prospectus, or it could just be the current shareholders wanting to diversify their holdings. That, you have to judge for yourself.

Placement shares is the shares allocated to private investors or banks. Usually a strong uptake means that there is a lot of institutional demand for the stock, thus it might do well over the long term.

Offer shares, are the typical IPO ballot shares where people apply over the ATM or over internet banking. A small amount of offer shares, would usually mean that it is harder for a person to get the shares via balloting. However, an overly large amount for the offer shares could mean they have lousy institutional support, or that there will be so many shares available in the hands of the public that the price would not perform well.

(Do read the article on the different between offer shares and placement shares if the above doesn't make sense)

In the prospectus, a number of dates would also be written. The most important 2 dates is the closing of the IPO application and the date which the stock would start trading.

For someone who wants to apply for IPO, what he has to do is to first open a CDP account. The easiest way to do that, is actually to open a brokerage account at the same time, as the staff of the brokerage firm would settle the application for the CDP account together. (This usually take about a week or so, so make sure you have your account open before the IPO deadline)

To apply for the IPO, you can go to an ATM or via internet banking, go into the investment sections, and apply for the IPO. Once  you do that, the bank would charge you a $1 or $2 application fee. Do note though, this is just a balloting application, just like your HDB houses(government built housing). It does not guarantee that you will get the stock. After the closing date, the placement agent will tabulate all the applications, and randomly allocate the shares. This is usually done the next working day after the closing date, but to clarify, the date itself will be available in the prospectus. Once you have managed to get the shares in  your CDP account, you can proceed to sell it once it starts to trade on the market. Another thing to note though, you would probably not get the number of shares you applied for, even if you have been successful in the balloting.

A few months ago when I applied for an IPO, I applied for 36lots (or 36,000 shares) at $0.30 a piece. During the application process, 36000*$0.30 + 1 = $10,801 was deducted from my bank account. When the results was out, I was only allocated 2lots of it. As such, $10,200 was refunded to my bank account. So, make sure you check the number of shares allocated to you before you proceed to sell it on the stock market.

One last thing, IPOs are not sure-wins. Though, when the market is good, most IPOs make 50-70% easily upon listing, but thats only when the market is good.

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