SME IPO Readiness · Question

How is the issue price of an SME IPO decided?

Short answer

The company and its merchant banker propose the issue price, and the board approves it. No regulator fixes the number; the offer document must explain the basis. The price reflects earnings, assets, growth prospects, comparable listed companies and market mood at the time. In some issues a price band is set and investor bids help determine the final price; in others a single price is fixed upfront.

In more detail

Pricing is a negotiation between what the promoters hope for and what investors will pay. A high price raises more money for fewer shares but risks a weak subscription and poor trading afterwards. A modest price leaves less on the table for new buyers and builds goodwill, but dilutes promoters a little more for the same funds.

The inputs to the number are these.

Earnings and cash flow over recent years, usually shown against the restated accounts.
Net worth and asset base, which matter more for capital-heavy businesses.
Growth outlook, order book and the quality of customer relationships.
Valuation of comparable listed companies, adjusted for size and liquidity.
General market conditions and recent small-issue performance.

The merchant banker prepares a valuation view, tests it with likely investors and discusses a range with the board. Promoters usually decide after weighing subscription risk against dilution.

The offer document must carry a section on the basis for the issue price, listing the factors and the ratios used. Weak reasoning attracts reviewer queries. Where the price is aggressive relative to peers, expect hard questions from the exchange and possibly sceptical investors.

Price for the aftermarket as well

A company that lists and then drifts far below its issue price struggles to raise money later. A price that leaves a sensible margin helps long-term credibility.

Valuation methods are judgment-based; two professionals can reach different, defensible values. Treat any early number as a working range, not a promise.

Key points

The company and merchant banker propose; the board approves; the regulator does not set a price.
Fixed price and price band with bidding are the two usual routes.
Basis for the price must be disclosed with reasoning and ratios.
An aggressive price can lower subscription and later trading performance.

Who this applies to

Promoters worried about dilution and expected valuation before launch.
Finance heads preparing the numbers the valuation will rest on.
Owners comparing listing valuations with private investor offers.

Last reviewed 3 October 2026

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