IPO – Allotment of Shares

An IPO(Initial Public Offer) has an issue start date and issue end date, during which the investors can apply for the stocks. The applications forms are made available online and (or) offline with brokerage houses and offline with some agents and outlets.

 

Allotment of shares to the applicants depends on whether the issue is oversubscribed or undersubscribed. If the issue is undersubscribed all the applicants will get the full quantity of shares they applied for. The unsubscribed shares will have to be bought by the underwriter if the agreement is structured based on ‘firm commitment basis’.

If it is oversubscribed then the management and the investment banker decide a way to allot shares. They could randomly allot shares or proportionately allot them. If one has applied for 10 lots and the issue is oversubscribed by 5 times then on proportionate basis the applicant will get 2 lots. They can decide any other method of allotment of shares.

As we already discussed under book building method different investors can apply at different prices. Once the cut off price is decided the shares are allotted to them under uniform price method. If the cut-off price is Rs500 and say one investor quoted Rs550 and the other Rs450, both of them will get the shares at a price of Rs500 per share. Book building method is used only to find the cut-off price. The company appointed registrar returns remaining funds to an investor if he is not allotted/partially allotted shares or if he quoted at a price above the cut-off price.

Under discriminatory price method shares will be allotted to different investors at different prices above the cut-off price. In this method the investors with highest bid price will be allotted first and so on. This method is not famous and not used in India.
 

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December 27, 2008 | Filed Under Stocks 

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