Buying IPO Stock In Singapore
An Initial Public Offering happens when a private business or company decides to go to public markets for financing, by issuing its stock, to an outside investor. It usually occurs when the formerly private company moves to sell some of the founders’ shares or by selling new shares to raise capital for expansion. While at the same time, it lists itself on a stock exchange or over-the-counter market. Usually, IPOs will be offered directly on the primary market to investors. After the business has been listed, they are then traded on a secondary market (the stock exchange).
How to buy IPO Stock
Buying of IPO depends on the time when you purchase it, but you still have to work through a registered brokerage firm. If the company has not been listed, you can call investors relations representative and inquire if they are selling stock in a private offering and at what price. The representative will direct you to the company’s broker-dealer for you to complete your purchase.
If the company has gone public, and you are interested in purchasing stock; you need to register with a broker, deposit money in your brokerage account for the purchase of stock. With funds in your account after the listing of the IPO, you can go online or call your broker to purchase shares.
Purchasing of IPO can be done before or after the underwriter has set the opening price. For you to purchase shares before the price has been set, it will require you to have a good relationship with the company management or be a professional investor. Premarket purchases are usually in large sums of money in millions. The downside with premarket purchase of a stock before IPO is that it will hard to dispose before the IPO date.
Benefits of buying IPO stock
Investing in IPOs has several benefits, and it enables you join the action early. It is an opportunity to earn profits in the short whereby you will sell the shares purchased at a higher price if the value surges. Also, there is transparency when buying IPO stock because the share price is quoted on the order document, so you have access to information similar to larger investors. If you invest in a small company with the potential of growing, you have a chance of earning big if the value of the company grows.
Risks of buying IPO Stock
Most investors will jump on the idea of investing in an IPO for fear of missing out on an opportunity. Investors put their money in IPOs intending to make quick cash by selling the stock at a higher price when the stock begins trading. There have been over 130 IPOS in Singapore since 2012, and most of them usually end highly on the first day of trading. However, with time, these IPOs flipped and are currently trading lower than the IPO prices. Therefore it is risky investing in an IPO to make money in the future. It is better to invest in the company/business post-listing.
Another issue with IPO is that shares are valued high, as founders and private equity firms want to raise money and cash out on their investment. The prices are usually higher than the economic value of the business, which therefore seems a bad investment. Equally, investors will be better off investing in shares in a security exchange than investing in IPOs.
How to buy an IPO stock in Singapore
In Singapore, if you want to invest in IPO stock, then you will first need to open a CDP account with the SGX. You cannot apply for IPO shares without a CDP account because your CDP account number is required the first time you apply. The CDP offers integrated depository, settlement, and clearing services where the IPO stock you purchase will be deposited and stored automatically.
You should have an account with a local bank and an ATM card from either DBS or POSB. However, you can still open your account through a brokerage firm and within ten business days after submitting your application CDP will give you all the necessary login details. It is important to have a CDP account before an IPO because IPOs usually last a short period.
With your account, you can apply for the IPO stock at the IPO trances through internet banking or ATM before it closes. Currently, the IPO fee is $2 per transaction, and you are required to have enough funds to debit the stock you have purchased. You should check for the results the following day after the IPO has closed.
The allocated IPO stock can then be sold through “normal cash accounts” of your preferred brokerage firm that is linked to the CDP account. Popular brokerage firms include DBS Vickers Securities, OCBC Securities, CIMB, UOB Kay Hian, Philips Securities, and Maybank Kim Eng.
Recent IPOs In Singapore
Prime US REIT held an IPO offering that closed on July 15, 2019, of which the proceeds were to be put into funding purchase of properties. The REIT offered over 335 million units in the IPO for $0.88 per unit. The REIT held the placement tranche of 318 million and public offering of around 15 million units concurrently. In the long term, they sought to achieve growth in distributions per unit and net assets value.
Equally Alliance Healthcare Group Limited held an IPO that closed on May 29 with the stock starting to trade on May 31, 2019. The company offered around 32 million shares in the IPO at a price of S$0.20 per share. Out of the total shares, 31 million shares were through placement tranche while the other million was through a public offering. The market cap of the company based on approximately 207 shares is around S$41.6 million.