SME IPO Step-by-Step Process – 5 Capital Restructuring

The Foundation of an SME IPO: Capital Restructuring

The journey toward an SME IPO begins with one of the most crucial decisions: appointing a Merchant Banker. who is a professional with expertise in market expectations and regulatory compliance.

As your company moves toward an IPO, ensuring that your financials and shares are in order is crucial. One key step in this process is Capital Restructuring, which involves adjusting your company's capital structure to align with the requirements of public markets.

This process helps optimize your shareholding structure and ensures that your company complies with regulatory standards and is ready to attract investors.

What is Capital Restructuring?

Capital Restructuring refers to the process of adjusting the financial structure of your company, specifically focusing on equity capital and share distribution. Before going public, your company’s capital structure may need to be modified to comply with the listing requirements of stock exchanges and to make the shares more accessible to the public.

Key Components of Capital Restructuring

1?? Bonus Issue

Issuing additional shares to your existing shareholders (in proportion to their current holdings) enhances liquidity in the market and makes shares more accessible to investors. Bonus issues also signal a strong financial position, instilling confidence among shareholders before the IPO.

2?? Rights Issue

A rights issue allows existing shareholders to purchase additional shares at a discounted price. This is a strategic tool to raise funds without significantly diluting ownership, giving shareholders the first right to maintain their proportional ownership in the company.

3?? Preference Shares

Issuing preference shares can be a flexible option for raising funds. Preference shares come with fixed dividends and are less risky for investors compared to equity shares. They strike a balance between raising capital and managing equity dilution effectively.

4?? Increasing Authorized Share Capital

Authorized share capital is the maximum number of shares your company can issue. If it is insufficient for your IPO needs, it must be increased to meet regulatory requirements and accommodate future growth initiatives.

5?? Proposed Issue Valuation & Pricing

Your company’s valuation and the pricing of shares are key factors affecting IPO success. With the help of a Merchant Banker, you’ll decide between:

• Fixed Issue: A pre-set share price.
• Book Building: Share price determined through investor bids.

Key Information Derived from Capital Restructuring

During restructuring, the following information is identified to ensure transparency and clarity:

• Issue Size: The total capital your company aims to raise during the IPO.
• Lot Size: The minimum number of shares an investor can bid for during the IPO.
• Number of Shares: Total shares offered in the IPO, including fresh issuance and those offered for sale.
• Post-Issue Paid-Up Capital: The company’s total equity capital after the IPO.
• Post-IPO Valuation: A key indicator of your company’s market value, calculated based on the IPO price and post-issue capital.
• Post-IPO Book Value: The net asset value per share, reflects the company’s financial position after the IPO.
• Post IPO PE Ratio: The price-to-earnings ratio after the IPO, which provides investors with insight into the company’s profitability and valuation.

Laying the Groundwork for IPO Success: Capital Restructuring is the foundation of your SME IPO journey.

?? Next in Our Series: We’ll dive into the Due Diligence Process—what it means, why it’s crucial, and how it ensures transparency for your IPO. Stay tuned!

At GetFive we specialize in end-to-end equity fundraising solutions, helping businesses successfully meet corporate governance standards and achieve their IPO aspirations.

Are you ready to explore your company’s IPO journey? Contact us today or visit our website www.getfive.in for more information.

?? Questions or Comments? Let us know below, and we’ll be happy to guide you!