Oversubscription of

shares

SUBMITTED TO : SUBMITTED BY :
SHIKHA GUPTA MAM AYUSH MEHRA, SECTION-D
 OVERSUBCRIPTION
OF SHARES
 When a company receives applications for shares more
than the number of shares , it has offered to the
public , it is known as oversubscription of shares .
Usually , the companies with strong financial background
Or good reputation in the market or profitable future prospects
receive over subscription of shares .
How to deal with oversubscription?
 According to the guidelines of SEBI , a company cannot out
rightly reject any application. However , it can do so where the
information is incomplete, the signature is not there or the applic-
- ation money is insufficient. In this case , it is not possible for the
company to allot shares to every applicant in the number that
he desires . Thus , the company needs to allot the shares in a proper
manner . The company has the following three alternatives:
1. Reject some applications totally .
2 . Accept some applications in full .
3. Make Pro – Rata Allotment to the remaining applicants .
 1. Pro- Rata allotment
 Pro – rata allotment means no application is rejected. However ,they
will not receive the desired amount of shares . Everyone receives shares
according to the ratio of the total number of applicants/ total number
of shares issued .
For instance, ABC Ltd is planning to offer 40,000 shares to the public via
IPO . However , it receives 80,0000 share applications . Therefore, the
company opt for this method , where it has alloted the total shares to
every applicant. Thus , the ratio here will be 80,0000:40,0000 ie. 2:1 .
Hence , every applicant for the application of two shares will now
receive one share . Pro – rata allotment makes sure that every
applicant receives at least some shares against their application.
 2. Rejecting Applications

 The easiest way to deal with over subscription shares is to reject some
applications . According to the SEBI guidelines , companies can do so if they
find any incomplete application. In such cases , the application money is
refunded . For example, if a company receives 10,000 applications against
their 6,000 share , it can reject the remaining 4,000 in case there are any
discrepancies.
3. A combination of both
 However, among the excess applications , not everyone makes a mistake and
cannot be rejected on that ground . In such a scenario, a company opts for a
middle ground. Here , firms
accept the first set of applications in full . Amongst the remaining
ones , shares are alloted on a pro – rata basis .

 For example, XYZ Ltd. Is planning to release 20,000 shares in the

market . However, they receive 30,000 applications against it .
Therefore, in this scenario, this company can accept the first
20,000 applications in full and among the remaining 10,000
distribute shares to 6,000 as per pro – rata basis .
A Real – Life Example of
Oversubscription of Shares
 In 2012 , market analyst indicated that Facebook is finally issuing its
long – awaited IPO . The company was looking to raise around
$10.6 Billion via 337 million shares . Prices of stocks were in the range
of $28 to $35. Once this news broke , it created an enormous buzz
in the market and resulted in an oversubscribed IPO .
 As a result, the company took advantage of this situation. It
increases the number of shares from 337 million to 421 million.
Additionally , it increases the share prices to $34 to $38 per share .
Thus , Facebook and its team made the most of the situation and
generated more capital and increased its market valuation.
How can a company issue More shares ?

Every company holds back a substantial amount

of shares for further capital generation or to
distribute as management incentives. Therefore,
firms can add further shares in case an IPO is
oversubcribed .
Are there any disadvantages of
oversubcription ?
 Well , a complaint against this situation is
that investors often get snubbed . When
firms cannot issue any more shares , they
reject applications . On the other hand ,
investors often receive a lower amount of
shares compared to what they have applied for .