Dangote Refinery IPO Not First-Come, First-Served, Window Open Till Oct 13 Despite Early Rush — Finance Expert
Chartered Accountant and Finance Coach, Funke Ogunjobi, has clarified the mechanics of the Dangote Refinery Initial Public Offering, IPO, reassuring prospective investors that public share offerings are not operated on a first-come, first-served basis.
Addressing concerns over a possible early closure due to high demand, Ogunjobi explained that the subscription window is legally bound to remain open from September 14 to October 13, regardless of how fast the offer hits 100 percent capacity. Even if fully subscribed within the first few days, the window will remain open to allow oversubscription.
“An IPO is not a first-come, first-served store,” she said.
Ogunjobi explained that if an IPO targets 4.1 billion shares and receives requests for 8 billion shares by the closing date, the Securities and Exchange Commission, SEC, and the registrar will apply an approved allotment formula.
How The Allotment Works
According to her, investors will submit their application and pay 100 percent of the money upfront for the number of units they want. The money is then moved into a designated escrow or receiving bank account managed by the issuing houses.
At that point, she noted, no shares are traded or transferred and the funds are not yet with Dangote. On the closing date, October 13, the total value of all applications worldwide will be calculated to determine the subscription rate.
Three Possible Outcomes
Once the rate is determined, three things could happen:
Undersubscription: Everybody gets everything they applied for.
Full Subscription (100%): Everybody gets everything they paid for.
Oversubscription: The issuer will create a basis of allotment formula which must be strictly approved by SEC.
In the case of oversubscription, Ogunjobi said small retail investors — those who ordered 10 units, 100 units, 1,000 units or slightly more — are usually favoured and cleared 100 percent.
The second category, institutional and high-net-worth investors like banks, insurance companies and pension agencies, will then be prorated and will not get the full amount they subscribed for.
She added that any unallotted cash will be returned to investors, who will get a notification by email on how many units they were finally allotted. The allotted units will then reflect in their Central Securities Clearing System, CSCS, account.
“You don’t have to worry that everything would finish before the 13th of October. Just calm down. If it is one thing that you want to invest in, you can do that within the timeframe that has been given, and you will still be okay at the end of the day,” she said.
