Equity IPO vs Debt IPO: Key Differences Explained

An Equity IPO involves issuing shares of ownership in a company to the public.

• Investors become shareholders and gain rights like voting and dividends.
  

• Proceeds are typically used for business expansion, acquisitions, or debt reduction.
  

• Equity IPOs can be fixed price or book-built.

A Debt IPO involves issuing non-convertible debentures (NCDs) or similar instruments.

• Investors become creditors, not owners.
  

• They receive fixed interest and the principal on maturity.
  

• Common among companies looking for predictable financing without diluting control.

Companies use equity and debt IPOs differently: equity issues involve ownership dilution and capital raising, while debt issues raise funds through borrowing without ownership change.

• Equity IPOs are chosen when a company wants to raise large sums, expand operations, or invite shareholder participation.
  

• Debt IPOs are used when companies need capital without diluting ownership, and can meet interest obligations.

Here’s how the risk–reward trade-off looks for investors:

• Equity IPOs offer higher upside potential but come with market risks and no guaranteed returns.
  

• Debt IPOs are often associated with investors seeking relatively stable income compared to equity IPOs.

Here’s what the process and regulations involve:

• Both IPO types require disclosures and regulatory filings like Form S-1 (US) or SEBI DRHP (India).
  

• Equity IPOs focus on ownership, dilution, and business plans, while debt IPOs emphasise interest rate, repayment terms, and covenants.

Equity and debt IPOs serve different roles in capital markets, each carrying unique structures and implications for both issuers and investors.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.