Question

Question # 2. Oman International Marketing (OIM) has decided to issue an IPO for OMR 4.980 Million in June 2020. The each share value is decided for 600 Baiza. Oman International Marketing has appointed your firm as an underwriter for this IPO. During the phase of ‘call for application’, your firm has received applications for 9.500 Million shares.
Required:
a) How many actual applications are need for full subscription of OIM’s IPO?


b) Whether your IPO is undersubscribed or oversubscribed with current receipt of applications for shares i.e. 9.500 Million shares?


c) After receipt of applications for 9.500 Million shares, as an underwriter of this IPO, which treatment you would suggest to the management of Oman International Marketing to make this IPO up-to its ‘Full Subscription’ only?

Answer 1

a)

IPO value = OMR 4.980 million

Issue price = 600 baiza = OMR 0.600 (1OMR = 1000 baiza)

Applications needed for full subscription = OMR 4.980/0.6 = 8.300 million (applications for shares)

b)

Applications received for 9.500 Million shares.

Applications needed for full subscription is for 8.300 million shares.

Received is more than needed, therefore, IPO is oversubscribed.

c)

It is suggested that Management issues the shares on a pro-rata basis as the IPO is overpriced.

i.e., 83 Shares shall be issued for every 95 applications received to make the IPO fully subscribed.