Minimum subscription
The least an issue must raise to go ahead — at least 90% of the fresh issue offered through the offer document; if it is not received, all application money is refunded within four days of closure.
In plain language
An issuer that asks the public for Rs 500 crore to build a plant cannot sensibly go ahead with Rs 120 crore. The plant will not get built, and the investors who did apply would be left holding shares in a half-funded project. Minimum subscription is the floor below which the issue is treated as failed and the money goes back.
Under the ICDR Regulations the floor is at least ninety percent of the offer through the offer document — with one important carve-out: an offer for sale by existing shareholders is not counted. So in a composite issue (fresh shares plus an offer for sale), the 90% is measured against the fresh issue only.
How it works
The equity rule (Chapter 5, section 5.6).
- Minimum subscription is at least 90% of the offer through the offer document, except in the case of an offer for sale of specified securities.
- In a composite offer, it is reckoned with regard to the fresh issue of shares only.
- It is also subject to the allotment of the minimum number of specified securities prescribed under the Securities Contracts (Regulation) Rules, 1957.
- If minimum subscription is not received, all application monies shall be refunded to the applicants forthwith, but not later than four days from the closure of the issue.
Related floors in the same chapter.
- The issuer shall not make an allotment in a public issue if the number of prospective allottees is less than one thousand.
- Where an issue is required to be underwritten, the underwriting obligations should at least be to the extent of minimum subscription — which is exactly why underwriting exists.
- If listing or trading permission is refused, the issuer must refund within four days of receiving the exchange's intimation; money not repaid within four days after the issuer becomes liable makes the issuer and every director who is an officer in default jointly and severally liable with interest at fifteen per cent per annum.
Different floors elsewhere in the workbook.
| Issue | Minimum subscription / allottees | Chapter |
|---|---|---|
| Main board equity public issue | 90% of fresh issue; at least 1,000 allottees | 5 |
| SME initial public offer | Must be 100% underwritten, "not restricted upto the minimum subscription level"; at least fifty allottees | 8 |
| Public issue of debt securities | 75% of the base issue size, for NBFC and non-NBFC issuers alike | 8 |
The formula
Minimum subscription (equity) = 90% × fresh issue size
(offer for sale portion excluded)
Minimum subscription (debt) = 75% × base issue size
A worked example
Illustrative figures. Three issues close on the same Friday, 12 September.
Issue A — pure fresh issue of Rs 750 crore.
Minimum subscription = 90% × 750 = Rs 675 crore
- Valid subscriptions of Rs 690 crore (92%) → clears the floor; allotment can proceed, provided there are at least 1,000 prospective allottees.
- Valid subscriptions of Rs 660 crore (88%) → fails. Every rupee of application money must be refunded (for ASBA bids, unblocked) not later than four days from closure — by 16 September.
Issue B — composite: Rs 600 crore fresh issue + Rs 400 crore offer for sale.
Wrong: 90% × (600 + 400) = Rs 900 crore
Right: 90% × 600 = Rs 540 crore
The selling shareholders' Rs 400 crore plays no part in the test, because the offer for sale is excluded.
Issue C — public issue of NCDs, base issue size Rs 200 crore.
Minimum subscription = 75% × 200 = Rs 150 crore
If it collects Rs 140 crore, the entire application money is refunded within the stipulated period from closure.
Why lead managers watch the last afternoon. Chapter 6 tells the merchant banker that where definite information about subscription figures is absent, the issue should be kept open for the required number of days to avoid a later dispute with the underwriters about their liability.
Why NISM asks about it
"Minimum subscription, allotment and refund" is a named learning objective of Chapter 5 (Issue Management – Process and Underwriting), the single heaviest chapter at 18% of the paper. Chapter 8 adds the debt-issue figure (75% of base issue size) and the SME underwriting rule.
Expect a direct number question (90%, four days, 1,000 allottees), and expect a composite-issue computation where the trap is including the offer for sale.
Common exam traps
- The offer for sale is excluded. In a composite issue the 90% is applied to the fresh issue only.
- Four days, not fifteen. Fifteen days is the refund window for an applicant withdrawing after a change under a shelf prospectus.
- 90% is equity; 75% is debt — and the debt figure is of the base issue size, not of the base issue plus retained oversubscription.
- SME IPOs are different in kind: they must be underwritten for 100% of the offer, not merely up to minimum subscription, and need only fifty allottees.
- 1,000 allottees is a separate test. An issue can clear 90% and still fail for having too few prospective allottees.
- Underwriting must cover at least minimum subscription — "at least", not "exactly".
Check yourself
1.What is the minimum subscription that must be received in a public issue?
- a)At least ninety percent of the offer through the offer document, except in the case of an offer for sale
- b)One hundred percent of the offer
- c)At least seventy-five percent of the offer
- d)At least fifty percent of the offer
Show the answer
Answer: (a) At least ninety percent of the offer through the offer document, except in the case of an offer for sale
The minimum subscription to be received in the issue shall be at least ninety percent of the offer through the offer document, except in case of an offer for sale of specified securities.
The exception follows from what an offer for sale is. No money reaches the company, so there is no project to underfund. Hence: in a composite offer involving a fresh issue of shares along with an offer for sale, the minimum subscription shall be reckoned with regard to the fresh issue of shares only.
A second condition applies alongside: the minimum subscription to be received shall be subject to the allotment of minimum number of specified securities, as prescribed under the Securities Contracts (Regulation) Rules, 1957.
On failure: in the event of non-receipt of minimum subscription, all application monies received shall be refunded to the applicants forthwith, but not later than four days from the closure of the issue.
Everything is refunded, not just the shortfall.
Underwriting exists to prevent this outcome. Where the issue is required to be underwritten, the underwriting obligations should at least be to the extent of minimum subscription — so the commitments are sized to carry the issue past the ninety per cent line.
Do not confuse the 90% with the other percentages in this chapter. Seventy-five percent is the QIB allotment under Regulation 6(2) and the firm-arrangements-of-finance threshold; one percent is the security deposit and the rounding-off over-allotment limit; and one thousand is the minimum number of prospective allottees — the issuer shall not make an allotment pursuant to a public issue if the number of prospective allottees is less than one thousand.
And late refunds carry interest at fifteen percent per annum.
2.Which statement about underwriting a book built public issue is correct?
- a)The entire issue including the QIB portion must be underwritten
- b)The issue is underwritten by the lead managers and syndicate members, but the 75% net offer compulsorily allotted to QIBs under Regulation 6(2) cannot be underwritten, and the lead managers must fulfil any syndicate member's failed obligation
- c)Syndicate members may subscribe freely to attractive issues for their own account
- d)The underwriting agreement is entered into after the prospectus is filed
Show the answer
Answer: (b) The issue is underwritten by the lead managers and syndicate members, but the 75% net offer compulsorily allotted to QIBs under Regulation 6(2) cannot be underwritten, and the lead managers must fulfil any syndicate member's failed obligation
The issue shall be underwritten by lead manager(s) and syndicate member(s): Provided that at least seventy-five percent of the net offer proposed to be compulsorily allotted to qualified institutional buyers for the purpose of compliance of the eligibility conditions specified in sub-regulation (2) of regulation 6, cannot be underwritten.
If the syndicate member(s) fail to fulfil their underwriting obligations, the lead manager(s) shall fulfil the underwriting obligations.
That carve-out disposes of option A. The QIB portion under the 6(2) route is compulsorily allotted, so there is nothing to underwrite.
Option C breaches an express prohibition: the lead manager(s) and syndicate member(s) shall not subscribe to the issue in any manner except for fulfilling their underwriting obligations.
Option D reverses the sequence: the issuer shall, prior to filing the prospectus, enter into underwriting agreement with the lead manager(s) and syndicate member(s), indicating therein the number of specified securities which they shall subscribe to at the predetermined price in the event of under-subscription in the issue.
Two more conditions: in case of every underwritten issue, the lead manager(s) shall undertake minimum underwriting obligations as specified in the SEBI (Merchant Bankers) Regulations, 1992, and where the issue is required to be underwritten, the underwriting obligations should at least be to the extent of minimum subscription — that is, ninety percent.
On devolvement two clocks run. The lead manager shall ensure that the notice for devolvement containing the obligation of the underwriters is issued within ten days from the date of closure of the issue, and the underwriter shall subscribe to such securities within 45 days of the receipt of such intimation.
And there is no side profit: a Merchant Banker acting as an underwriter shall not derive any direct or indirect benefit from underwriting the issue other than the commission or brokerage payable under the agreement.
On the capacity cap, note the workbook differs internally. This chapter says twenty times of the net worth; Chapter 3 states the current rule as twenty times of the liquid net worth, with existing merchant bankers to comply by January 02, 2028. Prefer the liquid net worth figure.
3.The issuer and merchant banker must ensure that the security created to secure debt securities is adequate to ensure what asset cover?
- a)100 percent
- b)50 percent
- c)75 percent
- d)80 percent
Show the answer
Answer: (a) 100 percent
The issuer and the merchant banker shall ensure that the security created to secure the debt securities is adequate to ensure 100% asset cover for the debt securities.
Note that the obligation names both — the issuer and the merchant banker share it.
Do not confuse it with the 75% figure in the same chapter. The minimum subscription as stipulated by SEBI is 75% of the base issue size for both NBFCs and Non-NBFCs issuers — and if that is not received, the entire application monies shall be refunded within stipulated period from the date of the closure of the issue.
The merchant banker's other obligations in a debt issue:
The Merchant Banker shall verify and confirm that the disclosures made in the offer documents are true, fair and adequate and ensure that the issuer is in compliance with these regulations as well as all transaction specific disclosures as required in the Companies Act, 2013.
The intermediaries shall be responsible for the due diligence in respect of assignments undertaken by them in respect of issue, offer and distribution of securities to the public.
No person shall employ any device, scheme or artifice to defraud in connection with issue or subscription or distribution of debt securities.
And the issuer's own duties — to disclose all the material facts in the offer documents and to treat the applicants in a public issue of debt securities in a fair and equitable manner.
Other numbers to keep separate: the base issue size for a public debt issue is a minimum of Rs.100 crore; oversubscription retention is upto a maximum of 100% of the base issue size; the draft prospectus is available to the public for comments for a period of seven days; and security has to be created within a specified time limit for debt securities which are secured, alongside a debenture redemption reserve subject to the stated exemptions.
Where this is taught
Free preparation for NISM Series IXRelated terms
- ASBAThe mandatory payment mechanism for public and rights issues, in which your bank blocks the application money in your own account and debits it only if you actually get an allotment.
- SME ExchangeA trading platform of a recognised stock exchange with nationwide terminals, permitted by SEBI to list securities of small and medium enterprises — distinct from the Main Board.
- Merchant bankerA SEBI-registered body corporate engaged in the business of issue management — arranging the selling, buying or subscribing of securities, or acting as manager, consultant or adviser in relation to an issue.
- DevolvementThe part of an under-subscribed issue that falls on an underwriter to take up — its underwriting commitment less the applications it procured — notified by the lead manager within ten days of closure.
- Net offer to publicThe offer of specified securities to the public excluding reserved portions (such as for employees) and any securities subscribed by the promoter group — the pool that is split among QIBs, NIIs and retail.
- Shelf prospectusA prospectus under Section 31 of the Companies Act, 2013 that covers securities issued in one or more offers over a validity period of up to one year, without a fresh prospectus for each offer.
- Post-issue reportsThe reports a lead manager files with SEBI after an issue — for a public issue a final report within seven days of the basis of allotment; for a rights issue an initial report in three days and a final one in fifteen.
- Fixed price issueA public issue in which the company, with its lead manager, sets the issue price in advance and discloses it, so investors know exactly what they will pay when they apply — the alternative to a book built issue.
- UnderwriterAn institution that agrees, under an underwriting agreement, to subscribe to the part of a public issue that investors do not take up — and is paid a commission for standing behind the issue.