The role of the securities underwriter in the Initial Public Offering (IPO) process is crucial. The underwriter’s role spans the Pre-IPO, IPO Execution, and Post-IPO stages. During the Pre-IPO stage, the underwriter supports the company in devising an IPO strategy and conducting due diligence to ensure the prospective issuer’s compliance with IPO-related aspects.
An IPO underwriter acts as an intermediary between the company wishing to issue shares and the investors looking to purchase shares. The underwriter assists in preparing for the IPO by considering the desired amount of IPO proceeds, the type of securities to be issued, and the agreement between the underwriter and the company.
During the IPO execution stage, the underwriter helps the prospective issuer prepare documentation and submit registration statements to the Indonesia Stock Exchange (IDX) and the Financial Services Authority (OJK) until the registration is approved. This includes underwriting the securities during the share offering to potential investors.
The underwriter formulates the IPO strategy based on their understanding of the owner’s and/or shareholders’ objectives for the IPO. Some identified IPO objectives include business expansion, raising funds without the need for repayment, improving corporate structure, transferring shares to heirs or successors, and leveraging tax incentives for listed companies.
An experienced underwriter with a good reputation can assist the company as follows:
- Assessment and Due Diligence: The underwriter will conduct a comprehensive assessment of the company’s financial condition and business prospects. They will also perform due diligence to identify potential risks and legal issues.
- Prospectus Preparation: The underwriter will help prepare an informative and appealing prospectus for investors. This document contains essential information about the company, including its history, ownership structure, business plans, and financial projections.
- Roadshow and Promotion: The underwriter will conduct roadshows and promotional activities to attract potential investors to the company’s shares.
- Share Pricing: The underwriter will assist in determining a fair and market-appropriate share offering price.
- Share Distribution: The underwriter will distribute the shares to the investors who have purchased them.
- Secondary Market Support: The underwriter can assist the company in the secondary market process, such as price stabilization and additional share issuance.
Companies should understand the various forms of underwriting commitments offered by underwriters:
- Full Commitment: The underwriter guarantees the entire value of the securities issuance. If some shares remain unsold during the public offering, the underwriter is obligated to purchase the remaining securities.
- Best Effort Commitment: The underwriter does their best to sell the securities to investors. If some securities remain unsold despite all efforts, the underwriter is not obliged to buy them.
- Standby Commitment: The underwriter acts only as a partner to assist the issuer in selling securities during the public offering. If the securities are not sold, the underwriter is obliged to buy them according to the standby commitment, usually at a price below the public offering price.
- All or None Commitment: The underwriter and the issuer transact only if the underwriter can sell all the offered securities. If some securities remain unsold, the transaction between the underwriter and the investor is canceled, and all securities are returned to the issuer.
The IPO process can be illustrated in the table below:
Given the vital role of the underwriter outlined and the IPO process as detailed in the table above, selecting the right underwriter is key to a prospective issuer’s success in raising public funds through an IPO. Throughout its experience in assisting clients, SW INDONESIA has demonstrated good cooperation with various underwriters in Indonesia.
