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A guide to new issues and IPOs
Check out our handy guide on how initial public offerings and new issues work, the pros and cons of investing in them and deciding whether they're right for you.
What are IPOs and new issues?
What is an IPO?
IPO stands for Initial Public Offering. It’s when a company offers securities, often shares, for sale to the public for the very first time and lists on the stock exchange. It can sometimes be referred to as a ‘float’.
What is a new issue?
A new issue is where a company (or the government) makes a subsequent offer of securities to raise additional money. New issues can include new offers, or additional offers made by listed or unlisted companies that have previously made an offer of securities to the public.
The purpose of an IPO or new issue is for the company issuing the securities, known as the ‘issuer’ or ‘issuing company’, to raise money or capital.
Types of offers
Offers of securities are generally in the form of equity or debt.
- An equity offer is where you purchase a small piece of the issuing company and will generally be in the form of shares.
- A debt offer is where you are lending money to the issuer, and can receive payments, such as periodic interest payments, on the amount you have invested. Common debt offers are bonds and capital notes.
Benefits of investing in IPOs and new issues
The attraction of participating in a new issue or IPO, is that it provides an investor the opportunity to get in early, by purchasing new securities on the primary market. This is where they are issued for the first time, before they are listed and traded on the stock exchange (known as the secondary market).
When buying in an IPO or new issue, there are sometimes no brokerage fees to pay.
There may also be the potential to take advantage of quick profits if the price rises when the securities initially start trading in the open market. Just note, this doesn’t always happen and prices may go down. This will depend on the demand for those securities and the influence this has on the trading price.
Know the risks
Don’t forget, as with any investment opportunity, there are also associated risks. Participating in an IPO or new issue means you are investing directly in that company. If it performs badly (or the market is generally trending down), your securities can lose value. If it fails or goes out of business, you could even lose your whole investment.
As with any investment, you should do your own research into the company, IPO or new issue before you participate.
If you have any hesitation, consider carefully if this type of investment is for you.
Next steps
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Other helpful guides
ASB Securities Limited is an NZX firm. When you trade on the NZX markets through ASB Securities you must comply with NZX rules as outlined in the ASB Securities Trading Conduct for Online Share trading. ASB Securities terms and conditions apply. Pricing data supplied by ASX and/or NZX. ASB Cash Management Account, ASB Foreign Currency Account, ASB Margin Lending and ASB Term Deposits are provided by ASB Bank Limited. ASB term's apply. Rates and fees may change. Refer to asb.co.nz for other fees and charges. This page does not have regard to the financial situation or needs of any reader. As individual circumstances differ, you should seek appropriate professional advice. See the ASB Securities glossary for share trading and investment terms or Morningstar for research terms.
