LIC IPO: Details of what's employee discount and price band in an IPO?
The initial public offering (IPO) of the Life Insurance Corporation (LIC) is set to open next week.
While the IPO will open for anchor investors on May 2, others will be able to bid for it from May 4-9.
The insurance behemoth has set the IPO price band of Rs 902-949 and offered discounts for its policyholders, retail investors and employees. The discount for policyholders is Rs 60 and it is Rs 45 for employees and retail investors.
Let's have a look at what this means for LIC employees.
What is employee discount in an IPO?
When a company goes public by issuing an IPO, it allows an opportunity to its employees to participate in the public issue.
It does this in two ways: either by reserving a part of the shares for them or giving them a discount on the floor price.
Both these measures are widely seen as ways of rewarding employees for their service and loyalty to the company.
The reservation of share-issue increases the possibility of employees getting the shares in popular IPOs, like the one LIC is set to issue. The discount offered to employees is also intended to achieve the same result.
What is a price band?
A price band gives a broad idea about the exact value of a share. During IPOs, potential investors are given a range – upper and lower limits – between which they can bid to purchase a share.
The price band is determined jointly by the issuer (the company) and the underwriter.
The underwriter is a financial specialist who helps the company prepare for the IPO by considering issues such as the amount of money to be raised, the type of securities to be issued, and the agreement between the underwriter and the company.
The price band takes into account several factors, including the demand for the shares and the company's future growth potential.
How does this work?
A price band is set to ensure investors bid with the range.
It means if a price band is set from 900-920, then investors will have to place theirs within this range to be considered. If any investors place a bid below the lower band (900), the bid will be rejected.
