InvestorQ : What are the contingent factors in an IPO and why do they matter?
Aditi Sharma made post

What are the contingent factors in an IPO and why do they matter?

Mahima Roy answered.
3 years ago

This is where most of the big risks could be hidden so adopt an eagle eye here. As in most cases, even in an IPO, the devil lies in the details. Go through the risk factors and the contingent liability items closely. There could e a lot of weak spots in these segments. While most of the risk factors tend to be routine, there are some important cues hidden here. Firstly, there could be legal cases pending against the company or the promoters which could have larger implications. Secondly, the company or the promoters may have given guarantees that are the form of contingent liabilities for the company, either directly or indirectly. Lastly, in case of international JV partners and technology suppliers, there are normally penal provisions for under-performance which can be quite a big hit on the company. All these need to be factored in. The moral of the story is not to treat the prospectus as another routine document. It is a wealth of information. You can surely make a smarter and a more informed decision about investing in an IPO by going through the fine print of the IPO prospectus. The ball is entirely in your court!