There Are Ways to “Prepare” for an Initial Public Offering

Delays in the initial public offering process could lead to additional costs in an inflationary environment

• Ali Walked

The “IPO frenzy” we’ve been discussing frequently lately has entered a period of stagnation due to the stricter criteria imposed by the Capital Markets Board (CMB) at the beginning of the year and the introduction of inflation accounting. At a time when everyone needs financing, it is also necessary to address the mounting workload on stakeholders involved in the IPO process. Indeed, this workload can sometimes cause companies to lose time, leading to increased costs in an inflationary environment. 

Stakeholders in the Process

When a company’s board of directors decides to go public, three stakeholders manage the process up to the point of approval by the public authority. These stakeholders include independent audit firms, brokerage firms, and legal counsel. 

The initial public offering (IPO) process begins with the preparation of audited financial statements. The preparatory phase, which continues until the prospectus is approved, takes at least six months and requires a high degree of discipline.

Once all the necessary documents have been prepared and the process has moved on to the final stage of the public offering—the approval of the prospectus—efforts are made to schedule the validity period for the financial statements included in the prospectus. This is because the validity period for each set of financial statements is four and a half months. In other words, for a company filing for an initial public offering (IPO), the deadline for using year-end financial statements is May 15; for first-quarter financial statements, it is August 15; for six-month financial statements, it is November 15; and for nine-month financial statements, the final validity date is February 15. 

Once the independent audit is complete, the brokerage firm conducts its own reviews and analyses based on the audit reports and prepares a draft prospectus. During the drafting process, the company implements the revisions requested by the independent auditor. In the final stage, the completed materials are submitted to the Capital Markets Board (SPK) for review by an SPK expert. The SPK expert’s review and the process of addressing their questions is another time-consuming process. 

The Importance of Saving Time

Ensuring coordination between the company and its stakeholders during the initial public offering (IPO) process is equally important in terms of saving time. This is because company management has taken current market conditions into account when deciding to go public and has a specific timeline in mind. The question of whether to raise funds from the money market or the capital market is determined from the outset based on their economic forecasts. If they have opted for an IPO, they have a timeline and have made plans based on the funding they expect to secure in accordance with that timeline.

A company seeking financing runs the risk of wasting time while navigating the workflow between these institutions. This lost time translates into additional costs for the company, especially given today’s inflationary environment. In fact, because each financial statement has a limited shelf life—as I mentioned—and these processes often take longer than expected, the company can frequently find itself caught in a vicious cycle. For example, if the company’s financial statements are exposed to the risk of being affected by exchange rate or interest rate fluctuations, an initial public offering (IPO) may not even be feasible.

Responsibility must be shared

Looking at the current numbers of stakeholders in the process, there are 49 brokerage firms with broad authorization and 112 independent audit firms authorized to operate in the capital markets. It is difficult to estimate the number of firms that will provide legal opinions due to differences in their areas of specialization. 

However, despite these figures, the number of partner institutions involved in initial public offerings over the past three years is so small that it can be counted on the fingers of two hands.

Despite this quantitative diversity in the capital markets, a significant portion of the institutions involved in initial public offerings (IPOs) face a heavy workload. This is because these institutions, which have gained experience in IPOs in recent years, have inevitably become the go-to references in the market. As a natural consequence, the supply-demand imbalance among stakeholders is driving up the fees charged by these institutions, and at times, this situation can push the costs of an IPO to high levels for companies.

Therefore, I believe it is important to ensure comprehensive communication and cooperation among all stakeholders. Stakeholders can make concrete proposals to ensure a more equitable distribution of the responsibilities of the Capital Markets Board (SPK), which already has a heavy workload, or they can request regulations to ensure that existing responsibilities are distributed more equitably among them. Indeed, as in any market, a healthy competitive environment in the capital markets will not only reduce the costs of public offerings for companies but also, I believe, alleviate the burden on industry stakeholders by allowing those with heavy workloads to delegate their responsibilities.

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