It is the document issued by the owner of the IPO for share allocated as per the regulatory guidelines in an IPO. This contains all the crucial details about the Initial Public Offering.
It can largely be described as the distribution of shares of an IPO- Initial Public Offering issued by the company to the shareholders (New and existing), third party subscribers, QIBs, NIIs, etc.
The document published by the registrar or administrator of the Initial Public Offering- IPO which consists of all the important details about the offering like the share allocation ratio, demand or bidding information, and final price of the IPO to the investors of an IPO and shareholders is known as ‘Basis of Allocation’ or ‘Basis of Allotment’.
They are being segregated to various categories of people so that they can pass their bid on the same. Investors get every information in this like number applied, categories involved, Applications received and other details which are valid to them.
Usually during the allotment of IPO shares, the situation of Oversubscription occurs, and the document lists about the same as well i.e., how many times are the shares oversubscribed. If the IPO shares are oversubscribed, it basically means how interested the investors are in this stock and they like the company moving the market upwards for them (company) which can help it to grow.
The companies check for oversubscription by checking in the offered number and the received number in terms of categories and then accordingly allots to them in the final allotment process.
When IPO bids were received from Ujjivan Bank on 2nd December 2019, the total number of shares proposed for distribution (supply) amounted to 12.40 crore. Total issued subscription numbers (demand) were 2,053 crore numbers. This is an instance of 165.68 times over-subscribed IPOs.
When shares are oversubscribed then they are allotment as per the rules of Securities and Exchange board of India (SEBI) and its quite obvious that you will receive less shares than requested for. In such cases- whosoever bids gets at least one lot (minimum). For retail investors- SEBI has specified the amount to be between 10000 and 15000. The moment the final price is fixed, they decide the minimum lots based on the number of shares.
There are usually two cases when the IPO shares is to be considered successful:
In cases of very large oversubscription, the shares are allotted as per lottery or lucky draw and it is totally technical and not manually done. In such cases many applicants don’t receive shares due to its excessive demand.
What are your views on it? Have you applied for an IPO? Do share your views.