1. Company decides to go public A private company decides it wants to raise money from investors. 2. It creates/offers shares For example, suppose the company offers 100 million shares at ₦10 each. If all shares are sold, the company raises: 100m × ₦10 = ₦1 billion 3. Investors apply for shares YouRead more
1. Company decides to go public
A private company decides it wants to raise money from investors.
2. It creates/offers shares
For example, suppose the company offers 100 million shares at ₦10 each.
If all shares are sold, the company raises:
100m × ₦10 = ₦1 billion
3. Investors apply for shares
You apply through the approved channels, usually through a stockbroker or other designated receiving agent.
4. Shares are allocated
If demand is greater than the number of shares available, you may receive fewer shares than you requested.
5. The company becomes publicly listed
After the IPO, the shares can trade on a stock exchange, such as the Nigerian Exchange (NGX).
6. The share price can then move
If you bought at ₦10, it could later trade at ₦15, ₦8, ₦20, etc.
For example:
Buy 1,000 shares × ₦10 = ₦10,000
Later price = ₦15
Your shares are worth ₦15,000
Unrealized gain = ₦5,000
But the price can also fall, so an IPO is not guaranteed profit.
IPO vs buying an existing stock
IPO: You buy when the company is first offered to public investors.
Existing stock: You buy shares from other investors after the company is already listed.
One important point: you don’t necessarily need a huge amount of money to participate, but the minimum application, eligibility, pricing and allocation rules depend on the particular Nigerian IPO.
Imagine you have a friend named Emeka who wants to sell his famous jollof rice at the village market. Now, Emeka decides to raise money to buy more ingredients and expand his business by inviting the villagers to become his partners. He tells them, "Give me some money now, and when my business growsRead more
Imagine you have a friend named Emeka who wants to sell his famous jollof rice at the village market. Now, Emeka decides to raise money to buy more ingredients and expand his business by inviting the villagers to become his partners. He tells them, “Give me some money now, and when my business grows, I will share profits with you.”
This situation is similar to how an Initial Public Offering (IPO) works in the financial market. A company decides to go public and invites the public to buy its shares. When the IPO is undersubscribed, it means that not enough people are interested in buying the shares the company is offering.
In this case, if the IPO is undersubscribed, it could lead to several outcomes:
1. Reduced Funding: The company may not raise the desired amount of money needed for expansion or other plans. This lack of funds could affect the company’s growth prospects.
2. Lower Share Price: If there is less demand for the shares, the company may have to lower the share price to attract more investors. This could impact the valuation of the company and the returns for existing shareholders.
3. Market Perception: An undersubscribed IPO could signal to the market that investors are not confident in the company’s prospects. This negative perception might affect the company’s reputation and future fundraising activities.
4. Limited Growth Opportunities: With insufficient funds, the company’s growth plans and projects could be scaled back or delayed, impacting its competitiveness and long-term sustainability.
In summary, an undersubscribed IPO can have various consequences for the company, its shareholders, and its market position. It highlights the importance of market perception, funding strategies, and investor confidence in the success of a public offering.
The IPO is basically when a company offers its shares to the public for the first time to raise money. For example, if a company wants to raise ₦10 billion and offers 1 billion shares at ₦10 each, investors can apply to buy the shares. If the IPO is under-subscribed, it means investors did not applyRead more
The IPO is basically when a company offers its shares to the public for the first time to raise money.
For example, if a company wants to raise ₦10 billion and offers 1 billion shares at ₦10 each, investors can apply to buy the shares.
If the IPO is under-subscribed, it means investors did not apply for all the shares offered. For instance, if only ₦6 billion worth of shares are subscribed instead of the ₦10 billion target, the company may only raise ₦6 billion, depending on the terms of the offer. If there is an underwriter, they may also be required to take up the remaining shares, subject to the agreement.
So basically, under-subscription means demand for the shares is lower than the number of shares the company offered.
An underwriter is basically a bank or financial institution that helps guarantee an IPO. For example, if a company wants to raise ₦10 billion through an IPO but the public only subscribes for ₦7 billion, an underwriter may be required, depending on the agreement, to take up some or all of the remainRead more
An underwriter is basically a bank or financial institution that helps guarantee an IPO.
For example, if a company wants to raise ₦10 billion through an IPO but the public only subscribes for ₦7 billion, an underwriter may be required, depending on the agreement, to take up some or all of the remaining ₦3 billion.
So, in simple terms, the underwriter gives the company some assurance that the IPO can raise the required funds, while taking on the risk of the shares that the public doesn’t buy. In return, the underwriter usually receives a fee.
That’s why, when looking at an IPO, it’s important to check whether there is an underwriter and what exactly their agreement covers.
1. Company decides to go public A private company decides it wants to raise money from investors. 2. It creates/offers shares For example, suppose the company offers 100 million shares at ₦10 each. If all shares are sold, the company raises: 100m × ₦10 = ₦1 billion 3. Investors apply for shares YouRead more
1. Company decides to go public
See lessA private company decides it wants to raise money from investors.
2. It creates/offers shares
For example, suppose the company offers 100 million shares at ₦10 each.
If all shares are sold, the company raises:
100m × ₦10 = ₦1 billion
3. Investors apply for shares
You apply through the approved channels, usually through a stockbroker or other designated receiving agent.
4. Shares are allocated
If demand is greater than the number of shares available, you may receive fewer shares than you requested.
5. The company becomes publicly listed
After the IPO, the shares can trade on a stock exchange, such as the Nigerian Exchange (NGX).
6. The share price can then move
If you bought at ₦10, it could later trade at ₦15, ₦8, ₦20, etc.
For example:
Buy 1,000 shares × ₦10 = ₦10,000
Later price = ₦15
Your shares are worth ₦15,000
Unrealized gain = ₦5,000
But the price can also fall, so an IPO is not guaranteed profit.
IPO vs buying an existing stock
IPO: You buy when the company is first offered to public investors.
Existing stock: You buy shares from other investors after the company is already listed.
One important point: you don’t necessarily need a huge amount of money to participate, but the minimum application, eligibility, pricing and allocation rules depend on the particular Nigerian IPO.
Imagine you have a friend named Emeka who wants to sell his famous jollof rice at the village market. Now, Emeka decides to raise money to buy more ingredients and expand his business by inviting the villagers to become his partners. He tells them, "Give me some money now, and when my business growsRead more
Imagine you have a friend named Emeka who wants to sell his famous jollof rice at the village market. Now, Emeka decides to raise money to buy more ingredients and expand his business by inviting the villagers to become his partners. He tells them, “Give me some money now, and when my business grows, I will share profits with you.”
This situation is similar to how an Initial Public Offering (IPO) works in the financial market. A company decides to go public and invites the public to buy its shares. When the IPO is undersubscribed, it means that not enough people are interested in buying the shares the company is offering.
In this case, if the IPO is undersubscribed, it could lead to several outcomes:
1. Reduced Funding: The company may not raise the desired amount of money needed for expansion or other plans. This lack of funds could affect the company’s growth prospects.
2. Lower Share Price: If there is less demand for the shares, the company may have to lower the share price to attract more investors. This could impact the valuation of the company and the returns for existing shareholders.
3. Market Perception: An undersubscribed IPO could signal to the market that investors are not confident in the company’s prospects. This negative perception might affect the company’s reputation and future fundraising activities.
4. Limited Growth Opportunities: With insufficient funds, the company’s growth plans and projects could be scaled back or delayed, impacting its competitiveness and long-term sustainability.
In summary, an undersubscribed IPO can have various consequences for the company, its shareholders, and its market position. It highlights the importance of market perception, funding strategies, and investor confidence in the success of a public offering.
See lessThe IPO is basically when a company offers its shares to the public for the first time to raise money. For example, if a company wants to raise ₦10 billion and offers 1 billion shares at ₦10 each, investors can apply to buy the shares. If the IPO is under-subscribed, it means investors did not applyRead more
The IPO is basically when a company offers its shares to the public for the first time to raise money.
For example, if a company wants to raise ₦10 billion and offers 1 billion shares at ₦10 each, investors can apply to buy the shares.
If the IPO is under-subscribed, it means investors did not apply for all the shares offered. For instance, if only ₦6 billion worth of shares are subscribed instead of the ₦10 billion target, the company may only raise ₦6 billion, depending on the terms of the offer. If there is an underwriter, they may also be required to take up the remaining shares, subject to the agreement.
So basically, under-subscription means demand for the shares is lower than the number of shares the company offered.
See lessWhat do you mean by underwriter?
What do you mean by underwriter?
See lessAn underwriter is basically a bank or financial institution that helps guarantee an IPO. For example, if a company wants to raise ₦10 billion through an IPO but the public only subscribes for ₦7 billion, an underwriter may be required, depending on the agreement, to take up some or all of the remainRead more
An underwriter is basically a bank or financial institution that helps guarantee an IPO.
For example, if a company wants to raise ₦10 billion through an IPO but the public only subscribes for ₦7 billion, an underwriter may be required, depending on the agreement, to take up some or all of the remaining ₦3 billion.
So, in simple terms, the underwriter gives the company some assurance that the IPO can raise the required funds, while taking on the risk of the shares that the public doesn’t buy. In return, the underwriter usually receives a fee.
That’s why, when looking at an IPO, it’s important to check whether there is an underwriter and what exactly their agreement covers.
See less