Are all IPO underwritten?

[bullboy8]

I've always thought IPO are fully underwritting (underwritten mean fully insured by the underwritters to raise to whole amount despite lack of take up from investors). However, why did AIM listed: Foamasters only managed to raise $2.7m of of the proposed $38m in Dec 07?

Or are IPO not gauranteed by the underwritters?

Thanks

 

[Bagehot]

You get what you pay for. Underwriting is the process of having your equity issued and marketed by an IB, it doesn't necessarily include guaranteeing it. You basically choose between a 'firm commitment' agreement, where at a cost, the IB does guarantee you, or 'best efforts' where it does not. Looks like your example above chose the latter.

 

[bullboy8]

arrr..i see...thanks...but how to you find out whether a IPO is

firm commitment or best efforts?

because, its the IB choose "Best efforts" then it tells alot of thier confidence in the business.

thanks

 

[Bagehot]

arrr..i see...thanks...but how to you find out whether a IPO is

firm commitment or best efforts?

because, its the IB choose "Best efforts" then it tells alot of thier confidence in the business.

thanks

not necessarily: you don't know if its the IB that's insisted on best efforts because they don't have confidence, or the company because they want to save on IB fees - a firm commitment is an insurance and someone has to pay for it! If the company is very confident that the shares will be in demand, then they might go for BE as why pay for insurance you won't need? Also BE takes several different guises, for example BE can be 'fill or kill' - so either 100% gets done or the IPO gets pulled, or partial, so say under 50% and the IPO gets pulled, but above that they'll meet the orders. Also its a reflection on market conditions as much as the company specifics - at the moment a firm commitment will cost rather more (if you can get one at all) than it would have done six months ago!

The details will be in the IPO prospectus.