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Finshots Daily
An explainer on IPO financing
Mar 8, 2024
Exploring the concept of IPO financing, the role of wealth managers and non-banking financial companies, and recent regulatory actions taken by the RBI against a prominent player in the field.
06:32
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Quick takeaways
- Investors use IPO financing to leverage investments, leading to oversubscription.
- RBI reprimands JM Financial for excessive leverage, governance concerns, and potential regulatory violations.
Deep dives
Rise of IPO Financing and Its Mechanics
IPO financing has become popular due to the desire of investors to leverage their investments by borrowing money. High net worth individuals often subscribe to popular IPOs with funds obtained through these loans, causing massive oversubscription. Entities like wealth managers offer IPO financing by issuing commercial papers to raise short-term funds. Despite the risks, the practice yields high interest rates for lenders while investors face the prospect of paying high interest even without getting IPO allotments.
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