An initial public offering (IPO) is one way for a company to raise new funding, whether to increase business capital, expand its business or pay off debt. Not only that, by going public through an IPO, the company is expected to create added values for shareholders, enhance and strengthen reputation, increase brand awareness, and improve good corporate governance and transparency, as well as operate in a more professional standard.
Behind every successful IPO, there is a crucial role played by a securities company acting as the stock underwriter or securities issuers. When a company plans to go public through an IPO, it needs a partner who can help assess and analyze the company's readiness and feasibility, evaluate risks, look at its growth story, and so on before starting the IPO process. That is where the stock underwriters play a crucial role.
Table of Contents
The Role of Underwriters in IPO
Key Responsibilities of Underwriter
Go Public with the Best Securities House/Company!
What is a Stock Underwriter?
A stock underwriter is usually a securities company or investment bank, that acts as a guarantor of securities issuance by assisting company that are going public throughout the entire IPO process. Underwriter job includes conducting preliminary due diligence on the company’s readiness and eligibility of prospective issuers to be listed, performing fundamental analysis and valuation to determine a fair offering price, preparing and submitting the prospectus and compliance documents to regulators (OJK and IDX), marketing shares to prospective investors through mechanisms such as bookbuilding and roadshows, and facilitating communication between the company, regulators, and investors.
Types of Underwriters
Based on their main duties, stock underwriters can be divided into 2 types; lead underwriters and co-underwriters. Lead Underwriters play a full role as guarantors of securities issuance, assisting prospective issuers with preparations, the registration process with regulators, marketing activities, the distribution of shares to investors, payment of the total value of the securities, and coordination with issuers, other joint lead underwriters (if any), and supporting professionals.
Meanwhile, co-underwriters act as guarantors for only a portion of the issuance value of the securities assigned to them. Co-underwriters also play a role in supporting the absorption of IPO demand.
The Role of Underwriters in IPO
In an IPO, underwriters act as advisors and guarantors who weigh risks, evaluate and guarantee securities issuance before the IPO process. Therefore, whether or not a company is approved to be listed on the stock exchange or capital market also depends heavily on the crucial role of its securities companies as the underwriters.
Key Responsibilities of Underwriter
Underwriters have several main duties and responsibilities, including but not limited to:
Pre-IPO Phases
- Due Diligence on IPO Requirements
As part of the IPO preparation, the underwriter will conduct due diligence on the compliance and eligibility of the prospective issuer with the initial public offering requirements in accordance with the regulations of the IDX and OJK, both quantitatively and qualitatively.
- Creating Equity Story
Creating an equity story is very important before an IPO because it will be the main narrative that explains why investors should buy the company's shares, highlighting the strengths of the business model, market position, growth strategy, and competitive advantages. A strong equity story helps build trust, attract investor interest, supports optimal valuation, and ensure consistent communication with all stakeholders, while differentiating the company from its competitors. This is where the underwriter and the prospective issuer work together to formulate the equity story.
- Analyze Business, Financial and Company Strategy
Underwriter needs to do an in-depth review of the prospective issuer before proceeding to the IPO phase which is analyzing current business activities, including historical financial performance and the company's long-term strategy, this is very important to ensure that the prospective issuer's IPO represents high investment quality.
IPO Phases
- Preparing Prospectus
Underwriter together with other supporting professionals assists in the preparation and publication of the prospectus which contains information about the company, its financial condition, risks, IPO fund allocation, and the company's business prospects. This is important in order to provide clear and transparent information to potential investors.
- Marketing Activities
After the company receives pre-effective approval from the OJK, underwriter will conduct public exposes and management roadshows to present the company to potential investors. These activities aim to gauge investor feedback and interest in the company's shares prior to the IPO.
- Determine the Offering Price
Underwriter together with the prospective issuer determined the offering price by considering feedback from investors and current market conditions. Setting the right price is critical to attract investor interest and ensure the success of the company's IPO.
- Share Allocation and Distribution
Allocating shares and distribution to institutional investors, retail, and other strategic investors to create healthy aftermarket share price performance in the secondary market.
Post IPO Phases
At this phase, an experienced underwriter also analyzes and provides recommendations regarding the company's shares by publishing equity reports compiled by the underwriter's research team. These reports are published periodically (quarterly or annually). With these equity research reports, investors receive in-depth analysis of the company.
Go Public with the Best Securities Company!
With more than 25 years of investment banking experience, Mandiri Sekuritas provides comprehensive end-to-end underwriting services. With a competent and professional team, the services provided every phase from Pre IPO, IPO to Post IPO. With a strong reputation recognized by numerous awards, Mandiri Sekuritas has helped many companies to successfully go public. Please contact Mandiri Sekuritas today to start discussing your company’s IPO plans.
