Benefits of Issue of Securities
Initial Public Offering (IPO) of securities gives instant recognition and visibility to the firm, helps to attract and retain skilled personnel, increases the value of existing shareholders and tapping a broad universe of investors. IPO issues also offers various other benefits to the companies. They are:
Access to Capital: Small companies usually offer securities in the market when they are planning for expansion.
Access to Additional Funds in Future: Companies who have already made public offerings can generate more funds through additional stock offerings. They can also obtain loans from traditional sources of finance at much better terms depending on their performance, increasing visibility and reputation, and rise in market value of equity.
Debt Swap: Companies can utilize a favorable market scenario, and issue equity securities at higher end of company valuation to pay off expensive debts. By doing so, companies can reduce the debt burden and maintain balance in the debt-equity ratio.
Drive for Professional Conduct: After the issue and listing of securities, companies are required to follow regular disclosure requirements like publication of results and performance of company as per Accounting Standards. These improve corporate governance practices, professionalism and regulatory awareness, and bring more transparency in organizational activity.
Flexibility in Deals: Mergers, takeovers and buy-outs can be carried out post a public offering. Not only does an IPO provide the necessary funds for an acquisition, but also acts like a collateral security as the stocks of a listed company are liquid instruments and tradable in recognized stock exchanges.