What happens if the IPO is not fully subscribed?
mehakpal- Asked Bymehakpal
- Updated On:18-Mar-2024
- Replies:2
Short Answer
The SEBI (Securities and Exchange Board of India) requires every IPO to get at least an overall 90% subscription to proceed to the allotment process. If an IPO fails to get a 90% overall subscription (including the QIB, NII, and Retail category) by the last day of the issue then the IPO is cancelled and the money collected from the investors is refunded back.
Detailed Answer
What is an IPO?
IPO stands for Initial Public Offerings which is a process where a private company turns public by selling some of its Equity shares to Investors in return for their money. This is done to mainly raise capital.
IPO Subscription is a big process. It involved participation of the following parties:
- Investors- individuals, QIB
- Brokers- it can be banks or brokerage companies. (For example- Zerodha, Yes Bank securities)
- Stock Exchanges- BSE, NSE
- Registrar
To determine if the IPOs are oversubscribed or undersubscribed, you have to understand how IPO subscription is determined. To do that you have to know the shares offered and the bid. All this information is available on the broker & exchange website.
What is the Minimum Subscription for IPO?
The percentage of subscription that is required to consider as an IPO to be fully subscribed is 100% but the bare minimum amount of subscription that is required for the IPO to be successful is 90%.
For example, if a company is issuing 1000 shares in total and the overall bids received is for 1400 shared then the overall subscription can be considered to be 1.4 times which is known as Oversubscription. Whereas if the total number of bids turns out to be 600 shares then the IPO is considered to be undersubscribed at only 60%. In this case, the IPO is scrapped and all the money collected till then has to be returned to the investors as the IPO failed to get the minimum subscription of 90% of 900 shares in this case.
What happens if the IPO is Under Subscribed?
If any IPO fails to get the minimum subscription which is 90%, then the IPO is called off as according to SEBI (Securities and Exchange Board of India) every company should get at least 90% before going ahead with the allotment process.
IPOs are divided into 3 categories for the subscription process which are QIB, NII & Retail.
The subscription of an IPO is considered as a total of all three categories and not anyone individually.
Different Scenarios
Most investors apply for an IPO under the Retail segment hence we will study 2 different scenarios wherein one the Retail segment is fully subscribed but the overall IPO is not fully subscribed and the other where the retail segment is Fully subscribed but the overall IPO is not fully subscribed.
- If the IPO is Fully Subscribed but the Retail Category is Undersubscribed- In case the overall IPO is fully subscribed but undersubscribed in the Retail category then all the investors who had applied under the Retail category will get Full allotment for the shares applied. If one had applied for multiple Lots under the Retail category then they will be allotted the full quantity of shares that they had applied for.
- When Retail category is Oversubscribed but Overall IPO is Undersubscribed- In a case where the Retail Category is fully subscribed or oversubscribed but the overall IPO is subscribed by only 85% including the QIB & NII category then the IPO has to be canceled as the minimum subscription of 90% is not met hence all the money collected from the Retail participants as well as the Qualified buyers and NII’s will be returned by the company and the IPO will be scrapped.
What happens if IPO Undersubscribed?
By the above discussion it must be clear that an IPO has to get a minimum of 90% Subscription including all the three categories (QIB, NII &Retail). Then only it will be processed further to the allotment.
And by any chance, if the IPO fails to get the minimum subscription status of 90% by the last day of subscription, then the overall IPO will be scrapped and all the money collected by the investors will have to be returned.
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Discussion (2)
If the IPO is not fully subscribed, then all the applications till lower band will get appointment.
IPO prospectus is the document which gives information to the investors about the company statistics before they issue shares in public. It is mainly a 3 step process. For detailed description, read through the blog below.
An IPO or Initial Public Offering is where for the first time an earlier unlisted company sells new or existing securities and offers them to the public in the primary market.
There are many ways to check the IPO allotment status but Zerodha doesn't provide this facility on their website.** To check the allotment status you can visit the website of the registrar of the IPO**, for example, Link Intime, Karvy. With the help of a PAN number, you can easily check the status.
IPO or Initial Public Offering is the process through which a private company goes public by offering its shares to the public for the first time.
In an Initial Public Offering (IPO) a company sells its shares to investors in order to raise money. As a retail investor, you can apply for an IPO from the primary market in order to get the shares offered by the company. Once the shares get listed on the secondary market, you can sell your shares provided you have received an allotment in the primary issue.
Yes, you can apply for an IPO application under a minor or HUF's name, provided they have different PAN card numbers. Minors can open a Demat account with their parent’s PAN Card and bank account.
IPO is the primary stage where the company goes public and starts gaining investments from people. It is essential for the company to manage the details properly. For Public, IPO should remain open for at least 6 days and for maximum 10 days.
IPOs can be a good option for beginners as they provide an opportunity to get the shares of good companies at an attractive price. Though IPOs can provide good listing gains and quick profits, good companies can help you to create massive wealth in the long term.
No, the application process for an IPO can be availed with zero brokerage fees. Applying in an IPO is free of cost and you don't have to bear a fee.
Yes, it is mandatory to have a PAN number to apply for an IPO since July 2006 as per Securities and exchange board of India (SEBI).
rajnikanttlal
You said that In case the overall IPO is fully subscribed but undersubscribed in the Retail category then all the investors who had applied under the Retail category will get Full allotment for the shares applied. If one had applied for multiple Lots under the Retail category then they will be allotted the full quantity of shares that they had applied for. what if one had applied at lower price band in such retail category? will it be there 100% chances of allotment or not?