If an IPO does not meet minimum subscription level of 90% of the issue size, the issuing company is required to withdraw the IPO from the market. The issuer may also withdraw its IPO due to market conditions, industry problems or low subscription.

In the event of such a withdrawal, the issuer is required to release or repay all subscription amounts to investors within four days of completion of the issue.

Below you will find a list of failed IPOs, i.e. the list of IPOs that were opened for subscription but not listed onthe stock exchange:

List of withdrawn IPOs by company (IPO withdrawn after IPO launch)

• The above is list of IPOs withdrawn from 2007 till date.
• This report is for IPO failures on account of 90% minimum subscription not met and is different from IPO failures on account of poor performance on listing.

Frequently Asked Questions

1. What happens when an IPO is undersubscribed?

When an IPO (Initial Public Offering) is undersubscribed, fewer people are interested in buying the company’s shares than the total number of shares available. To avoid this, companies may lower the IPO price to attract more investors, even if it means they don’t raise as much money as they initially planned.

Reasons for IPO Undersubscription

Here are a few common reasons why an IPO may not attract enough investors:

• Lack of awareness about the IPO.
• High pricing of shares.
• Poor marketing of the IPO.
• Unfavorable market conditions.
• Issues or irregularities in the company.

SEBI’s 90% Rule

According to SEBI (Securities and Exchange Board of India), a company must achieve at least 90% subscription of the total shares offered by the IPO’s closing date. If this doesn’t happen, the company has to refund all the money collected from investors. This ensures investors don’t lose any money, but the company fails to raise any funds and may suffer a hit to its reputation.

Share Allotment in Undersubscribed IPOs

When an IPO is undersubscribed, every bidder gets the full number of shares they applied for. For example, if an investor bids for 10 lots, they’ll receive all 10 lots. However, if the subscription falls below 90%, the IPO is cancelled, and investors get their money back.

2. What happens when an IPO is withdrawn?

When an IPO is withdrawn, the company cancels the process of offering shares to the public. This means that the company will not be listed on the stock exchange and the shares will not traded. Reasons for withdrawal can include unfavourable market conditions, problems with the company’s valuation, investor sentiment, or unexpected changes in the company’s financial situation.

Impact on investors:

• Refund of subscription money: Investors who subscribe to the IPO will receive a full refund of their application money. This will happen as soon as the IPO is officially cancelled.
• Loss of confidence: Repeated withdrawals can lead to a loss of confidence among investors, making it more difficult for the company to raise capital in the future.

Post- IPO Withdrawal Options for Companies

• Reassessment and realignment: The company can reassess its valuation, adjust the offering price, or restructure its business plan before resubmitting the IPO at a later date.
• Focus on improving financial health: The company can work to improve its financial health, resolve internal issues, and gain investor confidence before attempting another IPO.
• Private placement: If conditions are not favourable for a public offering, the company can opt for a private placement to raise funds from select institutional investors or venture capital firms.

3. Can an IPO be cancelled by the company?

Yes, an IPO can be cancelled by a company. This usually occurs when the company decides to withdraw or cancel the public offering before its shares are listed on the stock exchange.

If the IPO is no longer feasible, the company can cancel it with the approval of the Board of Directors. After notifying the stock exchanges and SEBI, it must issue a public statement stating the reasons for the cancellation.

Investors who have subscribed to the IPO will receive their subscription amounts back in full. Cancellation can lead to uncertainty about the future of the company, which could affect investor sentiment and confidence.

If the cancellation is due to poor market conditions or unfulfilled investor expectations, it can also have a negative impact on general market confidence.

4. Why do companies withdraw IPO?

In India, companies can withdraw their IPO for various reasons, either actively or passively. Active withdrawal is when the company decides to cancel its IPO filing before it is finalized. A passive withdrawal occurs when the company fails to list its shares on the stock exchange within the specified time frame after the IPO filing. The decision to withdraw is usually made by the company.

At the time of filing the IPO, issuers do not know the exact valuations of investors, so the offer price is uncertain. After the filing date, when this information becomes known during the pricing process, issuers may withdraw their IPO.

Reasons why companies withdraw their IPOs:

1. Unfavourable market conditions: If the market environment is volatile or investor sentiment is poor, companies may decide to withdraw their IPO to avoid going public at an unfavourable price.
2. Valuation problems: Disagreements over the valuation of the company between the company and the underwriters can lead to withdrawal. If the price is not attractive to investors, the IPO may be cancelled.
3. Negative investor sentiment: If investors have concerns about the company’s future prospects or if negative signals emerge, this can reduce demand for the shares and cause the company to withdraw the offering.
4. Increased uncertainty: If the company faces significant uncertainty about its financial position or future performance, it may decide to postpone or withdraw the IPO until conditions improve.
5. Regulatory or legal challenges: Legal, regulatory or compliance issues may also lead to a decision to withdraw the IPO.

Courtsey To : Chittorgarh

About Post Author

Maria Stanly

aware@srvibes.com

http://www.srvibes.com

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