Definition
Unsubscribed in financial terminology refers to a situation where an initial public offering (IPO) or other securities offering isn’t fully subscribed to, meaning some shares remain unsold. This often happens when the offering price is set too high, or if there is inadequate investor interest. The remaining unsold shares are typically taken on by underwriting banks or back to the issuing company.
Phonetic
The phonetic transcription of the word “Unsubscribed” is /ʌnˈsʌbskraɪbd/.
Key Takeaways
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Importance
The term “unsubscribed” is important in business/finance as it refers to a situation where the demand for an initial public offering (IPO) is lower than the number of shares issued. This means that not all securities offered for sale by the issuing company were purchased by investors. This is often seen as a negative indication of the company’s perceived value and can potentially lead to a decrease in the share price once trading begins. Essentially, an unsubscribed IPO can negatively impact the company’s effort to raise funds, undermining its future growth and development plans. Therefore, understanding the concept of unsubscription helps investors, financial analysts and the companies themselves in the decision-making process related to IPOs and capital raising.
Explanation
In the financial and business realm, the term “Unsubscribed” poses significant importance in understanding the performance and demand for a specific stock offering. Traditionally, it applies to the scenario where the total securities offered to the public or a group of investors are not completely sold or taken up. The purpose of gauging the unsubscribed portion of an issuance is to evaluate the attractiveness, investor confidence or fair pricing of the offering, which are integral for the company’s capital raising strategy and investor relations.Moreover, an unsubscribed situation can send critical signals to both the issuing entity and the investment world. For instance, if a large portion of an Initial Public Offering (IPO) remains unsubscribed, it could imply a lack of investor confidence in the company’s prospects, potential overpricing of the offering, or even market conditions unfavorable for capital raising. These circumstances compel the issuer to reassess their strategies or adjust pricing, thereby aiding in better decision-making. It can also highlight opportunities for underwriters, who often have agreements to purchase any unsubscribed shares, that can later generate profits if sold when market conditions are more favorable.
Examples
1. Initial Public Offering (IPO): During an IPO, a company makes its shares available to the public for the first time. When the number of shares offered is greater than the number of shares bought, the remaining shares are said to be unsubscribed. For example, Company A launched an IPO for 1 million shares, but only 800,000 shares were bought by investors. The remaining 200,000 shares are unsubscribed.2. Rights Issue: When a company decides to raise additional capital by issuing new shares, they often offer these shares first to existing shareholders. If the shareholders do not take up this offer, the shares are considered unsubscribed. For instance, Company B issued a rights offering to their existing shareholders to buy additional shares, but not all shareholders took up the offering leaving some shares unsubscribed.3. Bond Issuance: Similar to IPOs, when a government or corporation issues bonds to raise money, and they don’t sell all of the bonds they intended to, the unsold ones are termed unsubscribed. For example, if City C issued bonds to raise funds for a new infrastructure project, but didn’t sell all of the bonds they had planned to, the leftovers would be referred to as unsubscribed bonds.
Frequently Asked Questions(FAQ)
What does ‘Unsubscribed’ mean in finance and business terms?
In finance and business, ‘unsubscribed’ refers to a situation where the shares offered for sale publicly by a company are not fully purchased or subscribed by the investors.
What happens when a share issue is unsubscribed?
If a share issue is unsubscribed, the company may not raise the intended amount of capital needed, potentially affecting their expansion plans or repayment of debts.
What are the potential reasons for shares being unsubscribed?
Shares could be unsubscribed due to several reasons including negative market sentiment, perceived overpricing, lack of investor confidence in the company’s future prospects, or overall economic factors.
How does an unsubscribed issue affect the company’s stock price?
The price of the company’s stock can be negatively affected if the issue is unsubscribed. This happens because the market perceives it as a lack of investor confidence in the company.
What steps can a company take if its issue remains unsubscribed?
If a significant portion of the issue remains unsubscribed, the company could revise the terms to make it more attractive, look for private placement investors, or even withdraw the issue.
Can small investors participate in the subscription for shares?
Yes, small investors can buy shares during the subscription period. If the subscription is oversubscribed, the allotment may be on a proportionate basis.
What is the opposite of unsubscribed in the financial world?
The opposite of unsubscribed, in financial terms, is ‘oversubscribed.’ It refers to a situation where demand for shares exceeds the number of shares issued.
Does a fully subscribed issue mean better company prospects?
A fully subscribed issue often reflects positive investor sentiment and confidence in a company. However, it doesn’t necessarily always translate into better prospects as the company still needs to deliver on its business plan and generate profits.
Related Finance Terms
- Initial Public Offering (IPO): This represents the process of a private company offering shares to the public for the first time. If not all the shares are bought, they’re said to be unsubscribed.
- Underwriting: This involves a financial institution agreeing to buy the unsubscribed shares of a company after an IPO.
- Securities: These are financial instruments like shares, bonds, etc., that can potentially stay unsubscribed if investors don’t purchase them.
- Offering Price: This is the price at which shares are offered during an IPO. An unattractive offering price can lead to shares remaining unsubscribed.
- Market sentiment: This reflects the overall attitude of investors towards a particular security or financial market. If the sentiment is negative, shares may go unsubscribed.
