Markets 101: What is an IPO?

Initial public offering (IPO) is an offering of stock or shares to the general public by a company which wants to raise capital for the first time. Following an IPO, the company gets listed and its shares are traded on stock exchanges. Most financially savvy investors will often refer to an IPO as the primary market of a share, which implies that on listing it begins trading on the secondary market. In the East African region, the year 2011 has seen through several successful IPO’s namely; Bralirwa and Bank of Kigali (Rwandese), British – American Investments (Kenyan) and the Tanzanian airline Precision Air.

An IPO is bound to occur where the major shareholder sells a substantial percentage of his/her stake to the general public for the first time in the company’s history and subsequently leading to listing of the company on the stock market. This major shareholder could be the government which in its divestment policy sells a part or its entire holding in a public sector company. For instance, the recent Bank of Kigali IPO saw the Rwandese government offload 20% of its stake in the bank. In such a case proceeds of the sale of shares go to the government. In other cases however, proceeds are injected back into the company to improve probably the operating cash position or for purchase of equipment.

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