Investors seeking shares in the Dangote Petroleum Refinery and Petrochemicals FZE Initial Public Offering (IPO) may receive fewer shares than they apply for if demand exceeds the number of shares available under the offer.
The N2.15 trillion IPO, which opened on September 14 and is scheduled to close on October 13, involves the offer of 4.1 billion ordinary shares at N525 per share, with a minimum subscription of 10 shares, valued at N5,250. With strong investor interest already reported, the possibility of the offer being oversubscribed has become a major talking point for prospective investors and industry observers.
What is oversubscription?
An IPO is said to be oversubscribed when investors apply for more shares than the company has offered. For example, if an offer makes 4.1 billion shares available but investors collectively apply for six billion shares, demand exceeds the original offer by 1.9 billion shares.
In such a situation, the company cannot simply give every investor the number of shares applied for because there are not enough shares within the original offer size. This means an allotment process becomes necessary to determine how many shares each successful applicant receives.
What will happen in the Dangote offer?
The Dangote Refinery IPO has a specific provision for oversubscription. According to the offer information, the refinery may absorb up to an additional 30 per cent of the original offer size, subject to approval by the Securities and Exchange Commission (SEC). The original offer is for 4.1 billion shares. An additional 30 per cent would amount to up to 1.23 billion shares. Therefore, subject to SEC approval and the applicable terms of the offer, the company could potentially increase the number of shares allotted to investors to as much as about 5.33 billion shares. At N525 per share, that additional 1.23 billion shares would represent up to about N645.75 billion in additional gross proceeds.
However, this does not mean that the company will automatically issue all the additional 30 per cent. The provision is a maximum, and its implementation would depend on the level of demand, regulatory approval and the terms of the offer.
What if demand is higher than the extra 30 per cent?
If demand goes beyond the shares available, including any additional shares that may be approved, investors should not expect to receive everything they applied for. The issuing houses will prepare a proposed Basis of Allotment for approval by the SEC. The final allotment will determine how the available shares are distributed among applicants.
The offer information states that where demand exceeds the number of shares available, the issuer will determine how the shares are allocated fairly among applicants, meaning some investors may receive fewer shares than requested. The details will be contained in the Allotment Announcement after the offer closes.
This is particularly important for large investors who may submit applications for hundreds of thousands or millions of shares. A large application does not automatically guarantee that the investor will receive the entire quantity requested.
Will small investors be protected?
The Dangote Refinery has indicated that it intends to give small investors priority in the event of oversubscription. Dangote said the offer was designed as a “People’s IPO” and that ordinary Nigerians should not be crowded out by large subscriptions.
“We are determined to ensure that ordinary Nigerians are not crowded out by large subscriptions. Our objective is not merely to raise capital, but to create millions of shareholders who can participate in the growth and prosperity of the Dangote Refinery. We want as many people as possible to own a stake in this national asset.”
The company has said the IPO is intended to broaden ownership and attract millions of investors. However, investors should distinguish between the company’s stated intention and the final allotment. The actual distribution of shares will be governed by the approved basis of allotment.
What happens to excess money paid by investors?
An investor who applies for more shares than he or she eventually receives will have the money relating to the unallocated shares returned. For instance, if an investor applies for 1,000 shares at N525 each, the application is worth N525,000. If the investor is eventually allotted only 600 shares, the value of the shares received would be N315,000.
The balance of N210,000 would represent money relating to the 400 shares that were not allotted, subject to the applicable process and deductions under the offer terms. According to the IPO information, surplus or rejected application monies are to be returned within five business days after the allotment announcement, while successful applicants’ CSCS accounts are expected to be credited with their allotted shares within 15 business days.
Does oversubscription mean the share price will rise after listing?
Not necessarily. Oversubscription can demonstrate strong demand for an IPO, but it does not guarantee that the shares will rise after they begin trading on the Nigerian Exchange (NGX). The IPO price is N525 per share, but once the shares are listed, their market price will be determined by buying and selling activity on the exchange.
The share price could rise above N525 if demand remains strong, but it could also fall below the offer price depending on the company’s performance, investor sentiment, refining margins, the wider economy and other market conditions. Therefore, an investor who receives an allotment should not automatically assume that the shares will deliver an immediate profit.
What should investors do?
Investors should understand that subscribing for shares is not the same as being allotted the full quantity requested. They should retain their application records, monitor the official allotment announcement and check their CSCS accounts after the allotment process.
The SEC has also warned investors to use only officially designated and approved channels for the Dangote Refinery IPO and to avoid individuals or platforms claiming to guarantee allotments or preferential treatment.
Ultimately, if the Dangote Refinery IPO is oversubscribed, the immediate consequence for an investor is likely to be partial allotment rather than full allocation, depending on the final demand and approved basis of allotment. The more heavily the offer is oversubscribed, the greater the possibility that investors will receive fewer shares than they requested.
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