IPOS EXPLAINED

What is an IPO?

An IPO, or Initial Public Offering, refers to the process by which a private company becomes publicly traded on a stock exchange. It allows the company to raise capital by selling its shares to the general public for the first time. Before an IPO, shares of the company are not available for public trading. After the IPO, the company’s shares can be bought and sold by investors on the open market.

Why do companies go public?

Companies opt for Initial Public Offerings (IPOs) primarily to raise capital, which aids in business expansion, research, development, and debt repayment. This move also benefits various stakeholders: it offers liquidity for early investors, like venture capitalists, enabling them to cash out; employees may receive stock options as compensation, enhancing recruitment and retention efforts; and the company itself gains enhanced credibility and visibility. Companies can also be compelled to list as a regulatory and legal requirement by the respective countries where they operate. Additionally, being publicly listed aids in mergers and acquisitions, as shares can be used in transactions, and provides a clear valuation based on market trading.

Furthermore, IPOs can be driven by existing shareholders who seek a return on their investments, founders looking for estate planning or wealth diversification, and the potential for easier access to future capital. The transition to becoming a public entity allows for the possibility of raising additional funds through secondary offerings.

How do I make money from an IPO?

To make money from IPOs, you would typically invest by purchasing shares at the IPO price and then selling them at a higher price once they start trading on the open market. You can also hold the shares for a long time and enjoy dividends. Success hinges on selecting IPOs with strong growth potential, understanding the company’s fundamentals and the industry it operates in, and timing your buy and sell actions appropriately. However, it’s important to recognize the inherent risks, as not all IPOs increase in value post-listing, and some may even decline significantly. Conducting thorough research and possibly consulting with financial experts can be beneficial in navigating the unpredictable IPO landscape.

How does an individual participate in an IPO in Uganda?

Participating in an IPO in Uganda entails a systematic approach. Initially, an individual must open a Securities Central Depository (SCD) account, which records and tracks securities ownership electronically. This can be done with the help of stockbrokers at the Uganda Securities Exchange (USE). Once you’ve engaged a licensed stockbroker from USE, they’ll guide you through the IPO application and offer necessary forms. Before investing, it’s crucial to review the Prospectus to understand the company and the IPO’s terms. With this knowledge, you can then fill out the application, make the requisite payment, and await share allotment post the offer period. After receiving a confirmation on the shares allotted, which are then credited to the SCD account, the shares get listed on the USE, allowing individuals to trade them.