Hyundai Motor India’s IPO was subscribed 43% at the end of day 2 of the issue. In the grey market also the company’s shares haven;t been attracting much attention. The current premium is less than 1% at Rs 17 or 0.87% of the issue price. That brings us to a question, what if Hyundai India’s IPO doesn’t get subscribed fully?
Under SEBI regulations, the company must receive applications for at least 90% of the IPO size or shares offered. Hyundai Motor India needs 12.80 crore share applications to proceed with the IPO. It has received 6.18 crore share bids as of September 16, it is still 52% away from the minimum criteria and 57% from full subscription.
What if IPO is not subscribed 90% by end of day 3?
If the issuer, Hyundai India, does not meet the minimum subscription of 90% or 12.80 crore shares, it will have to refund the whole amount raised to investors. “In case the shares are not subscribed by investors, the issue is devolved on underwriters and they have to bring in the amount by subscribing to the shares,” according to SEBI.
What is soft underwriting and when does that happen?
Now, if the IPO gets subscribed 90% or more than it but not fully, then soft underwriting takes place. Basically, soft underwriting happens when an underwriter agrees to buy the shares after the issue is closed. The underwriter’s overall risk is confined to the small window in which it needs to underwrite the leftover issue. “Underwriters are likely to ensure full subscription before the end of the last day,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Hyundai IPO Details
The IPO opened on October 15 to raise Rs 27,870.16 crore. The IPO closes on October 17. The issue is an offer for sale with no fresh issuance. The South Korea-based parent company, Hyundai Motor Company, is paring off 17% stake. The company’s IPO price band ranges from Rs 1,865 to Rs 1,960 per equity share. Kotak Mahindra Capital Company along with four other merchant bankers handled the book of the Hyundai Motor IPO. Kfin Technologies worked as the registrar for the issue.
“The issue in Hyundai IPO is the high valuation for such a large issue. Even after managing a full subscription, there is a high probability of the stock listing below the issue price,” said Vijayakumar.