Recently, the Internet was filled with news that the owner of «Yuzhuralzoloto,» Konstantin Strukov, reduced his shares. Strukov stopped being the company’s main shareholder. This process was launched in the issue of splitting shares between board members and entering the initial public offering, or IPO. In this article, we will talk about the main features of this process and find out why the corporations began initial public offerings.
«Yuzhuralzoloto» and IPO
Simply put, an initial public offering is the first public sale of company shares to an unlimited number of persons. During this process, the company gives shares and puts them on the stock exchange. Any investor or investment fund can purchase these securities on the stock exchange.
The initial public offering has many drawbacks, such as the tendency to significantly increase the price of shares during the first day of trading compared to the price of the initial placement. The fact is that investment banks and original owners often have some asymmetry between each other.
Thus, the shares of «Yuzhuralzoloto» entered the public market offering last year. The main goal of this IPO example is to use money to reduce the debt burden and for corporate purposes.
As an owner of «Yuzhuralzoloto,» Konstantin Strukov is a businessman from Forbes and Deputy Speaker of the Legislative Assembly of the Chelyabinsk region. His company changed the charter and became a public joint stock company.
The sale of the shares: features of the process
Any company has a high interest in business growth. It is necessary to increase efficiency in the market and the competitive environment. Such business growth includes increasing production capacity, increasing market share, increasing research costs, and expanding customer base. Each of these business processes needs a lot of money to realize. Many companies see the solution as issuing shares or initial public offering and listing these shares on the stock exchange.
An initial public offering assumes that a private company becomes public when offering shares on the stock exchange to a wide range of individuals. There are several frequent goals of the IPO:
- Getting access to new sources of finance. This is the most important goal that owners of private companies aim for. The money the particular company receives from the initial public offering is needed to reduce its debt burden and expand its business.
- Profit guarantee for current company investors. The fact is that an initial public offering helps shareholders get a new tool to assess the company’s performance. As a result, the company’s capitalization increases through the emission income.
- Opportunity to leave the business for current company shareholders. If the initial public offering is completed successfully and efficiently, shareholders can get the maximum share price. Besides, they can return to this business in the future.
- Increasing recognition of the particular company nationally and globally. This helps managers secure additional funding from the company.
Conclusion
The share of divestments in the IPO is closely related to the relationship between the issuer and the investment bank. Capitalization is significant for the particular company, its managers, and shareholders. This is a standard process for many Western companies, and Russian corporations are just beginning to practice this method.