Definition
The process in which a privately run company sells its shares to the general public, openly shares its finances and operations, and makes its official debut on the stock market.
The moment a neighborhood restaurant moves into stores nationwide
Imagine a neighborhood burger joint that everyone raves about. Now it wants to open hundreds of locations across the country. The owner's personal savings or a bank loan alone can't cover that much money. But if the owner slices the ownership of the shop into small pieces and sells them to lots of customers, the business can raise a huge pile of cash all at once.
That's what an IPO is. A company whose shares were split among only a few founders and early investors sells shares to the general public for the first time. The name comes from the English phrase 'initial public offering,' which is why you'll often see it shortened to IPO.
With the money raised, a company can build new factories or develop new technology, and take a big leap forward. After going public, it also gets attention from the media and the market, which can give its brand trust a big boost.
You have to pass the exam to enter the stock market
Needing money doesn't mean any company can sell shares to the public. If an unproven, shaky company sells stock and collapses soon after, lots of ordinary investors get badly hurt. That's why an official body, such as the Korea Exchange, closely reviews a company's sales and financial health.
Once a company passes the review, it sets how many shares to sell and at what price, and it takes applications from investors. The IPO subscription you often see in the news is this very step. The more promising the company, the more crowded it gets. Competition can reach hundreds of applicants for every share on offer.
When the subscription ends and the shares are officially registered on the exchange's big board, anyone can finally buy and sell the company's stock freely on the open market. That's what people mean when they say a company has been 'listed' on the stock market.
To be more precise: it's not free money, it's a heavy responsibility
An IPO brings in a huge pile of capital that never has to be paid back. But the responsibilities that come with it are anything but light. The company is no longer owned by a handful of shareholders. Lots of ordinary shareholders become co-owners too.
So every quarter, the company has to share its report card and its finances with everyone (this is called disclosure). If sales drop or unexpected bad news hits, it has to tell the market openly. Every year it must also go through a strict audit by outside accountants.
Management can't make decisions all on its own either. Big moves, like changing the articles of incorporation or doing a merger, need shareholders' approval at a shareholders' meeting. And if performance slumps, management can face harsh criticism from shareholders and even a threat to its control of the company. An IPO is a grand celebration, and it's also a promise to accept the market's close watch.
Common misconceptions
The money raised through an IPO has to be paid back later, with principal and interest, like a bank loan.
Money raised by issuing shares is equity, not debt. The company has no duty to give investors their principal back. Shareholders can receive dividends when the company earns a profit, and they hope to gain when the stock price rises.
Where you meet it
Big Hit, which started as a small entertainment agency, went global. In 2020 the company (now HYBE) held its IPO and listed on Korea's main stock market, the KOSPI.
Coupang held its IPO on the New York Stock Exchange and raised trillions of won in investment money to expand its large network of distribution centers.
In one sentence
An IPO means selling shares once held by just a few people to the public to raise big business funds. In exchange, the company openly shares its management information. It is the official market debut.