Undersubscribed
Candlefocus EditorWhen an undersubscribed issue is announced, it is usually a bad sign for the issuer. This indicates either a lack of interest from investors or an unsuccessful marketing campaign. In addition, it can also be part of a problem arising from the issuer's pricing of the offering. The issuer may set the price at the outset too high for the market, which can lead to a lack of demand for the securities.
It is important to note that undersubscription does not always mean that the entire offering is not fully booked. It could simply mean that certain shares are undersubscribed, with other shares offering registering high demand.
In an IPO, undersubscription could mean that the company's management is not prepared to manage the costs related to launching and distributing the offering, or they set too high an offering price. This could mean that the launch was unsuccessful, or that the company has failed to attract new investors.
Institutional investors and accredited investors are generally the ones who have access to newer issues and have the capability to engage in underwriting. They have the resources to evaluate offerings, understanding risks and reward potential. They are also capable of making larger purchases which can help the issuer manage the distribution of a larger number of shares.
Therefore, in such cases, the issuer should make sure to attract the attention of the institutional investors and accredited investors and create interest for the securities. Corporates can increase the appeal of the offering by launching a well-structured marketing campaign, emphasizing the opportunity their IPO presents. It's also important to set the offering price at a reasonable level, to ensure there is adequate demand.
Undersubscriptions can have a negative impact on the issuing firm. As a result, It is essential that the issuer prioritizes not only the regulatory and contractual aspects of its offerings, but also keeps in mind the necessary marketing aspects that can make or break a successful issuance.