Initial Public Offering (IPO) is the process of selling shares of a private company to the public for the first time. Companies usually go public to raise funds for their expansion or to provide an exit opportunity for their early investors.
IPOs are highly sought after by investors because they can offer significant returns, especially if the company is successful. However, getting an allocation in an IPO can be a challenging task, but you can increase your chances of getting an IPO via MITI.
But What Is MITI?
The Malaysian government, through the Ministry of International Trade and Industry (MITI), provides a special avenue for Bumiputera investors to apply for IPOs. This special avenue is called the MITI Application, and it is only available to Bumiputera investors.
Source: Oppstar Prospectus
Bumiputera investors who apply for IPOs through MITI have a higher chance of getting the IPO via MITI application than through the normal public application process. The allocation of shares for Bumiputera investors through MITI is usually around 12% of the total shares allocated for all investors.
In contrast, the allocation for public applications is typically around 2.5% to 5%.
Benefit Of Applying IPO Via MITI Application
When applying for IPOs through MITI, Bumiputera investors can enjoy several benefits. Firstly, they can apply for IPOs first and pay later. This is because MITI allows investors to secure their allocation before making any payments, which is particularly advantageous if they do not have enough funds available at the time of application.
Secondly, Bumiputera investors only compete among themselves, which reduces the level of competition for the shares. This increases their chances of getting an allocation, particularly for popular IPOs that tend to be oversubscribed.
Thirdly, they can apply for IPOs earlier than through the normal application process, which means that they have a higher chance of securing shares at a lower price. Lastly, the higher allocation of shares for Bumiputera investors through MITI increases their chances of getting an allocation compared to applying through the public application process.
Disadvantages Of Applying IPO Via MITI Application
However, there are also some disadvantages to applying for IPO via MITI application. Firstly, investors cannot read the final prospectus of the company before applying. This can be a disadvantage because the prospectus contains important information about the company’s financials, business strategy, and risks, which can be useful for making informed investment decisions. Investors may have to rely on the preliminary prospectus, which may not contain all the relevant information.
Secondly, some IPO prices may not be available when applying for IPO via MITI application. This means that investors may not know the final price of the IPO until after they have applied. This can be a disadvantage if the final price significantly differs from the initial price range, affecting the investor’s investment decision.
Thirdly, the waiting time for the IPO shares to be allocated is usually longer than the normal application process, which can be a disadvantage if the investor needs the funds for other purposes or if the market conditions change significantly during the waiting period.
Lastly, investors who do not proceed with their application after being allocated shares may be subject to penalties, which can affect their creditworthiness and investment reputation.
In conclusion, the IPO via MITI application is a special avenue for Bumiputera investors to apply for IPOs in Malaysia. Applying through MITI can increase their chances of getting an allocation compared to the normal public application process. However, there are some disadvantages to applying through MITI, such as not being able to read the company’s final prospectus before applying and longer waiting times for the IPO shares to be allocated.
Investors should weigh the benefits and disadvantages before deciding to apply for IPO via MITI application or through the normal public application process.