How does an undersubscribed IPO work when there is no underwriter?

If an IPO (Initial Public Offering) is undersubscribed and there is no underwriter, the main issue is simple:

There aren’t enough investors willing to buy all the shares the company planned to sell.

Simple example to make you understand.

Imagine a company wants to sell 10 million shares at ₦100 each.

That means it wants to raise:

10 million × ₦100 = ₦1 billion

But investors only apply for 6 million shares.

So:

Shares offered = 10 million
Shares investors want = 6 million
Shortfall = 4 million shares

The IPO is undersubscribed by 40%.

What happens without an underwriter?

An underwriter is normally a financial institution that agrees, under the offering arrangement, to purchase some or all of the shares that investors don’t take up (subject to the specific underwriting agreement).

So if there is no underwriter, there is no party automatically obligated to take the remaining shares.

The company may therefore have several possible outcomes, depending on the offering rules and securities regulations:

The company raises less money than planned.
If only 6 million shares are sold, it receives ₦600 million rather than ₦1 billion.
The company may reduce the size of the offering.
It could accept the subscriptions received rather than issuing the full 10 million shares.
The IPO may be withdrawn or cancelled if the offering has a minimum-subscription condition that isn’t met.
The company may try again later, potentially with different pricing or offering terms.
Why is the underwriter important?

Think of it like this:

Company:
“I want to sell 10 million shares.”

Investors:
“We’ll only buy 6 million.”

With an underwriter:
“I’ll take responsibility for the remaining 4 million, according to our agreement.”

Without an underwriter:
“Nobody has automatically agreed to take those 4 million.”

So the company bears much more of the fund-raising risk.

Please Note that: An undersubscribed IPO doesn’t necessarily mean the company is failing. It simply means the demand during that offering was below the number of shares offered. The actual consequences depend on the IPO’s terms and applicable regulations made my exchanged body