How are underwriters' fees paid



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How is underwriters' fees paid in the cases of:-

(1) Minimum subscription

(2) Over-subscription.

(3) Under-subscription

2 Answer(s)


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Achintya, Underwriters fees is always a % of money raised or underwritten. So if the goal was to raise Rs.500 crores, then underwriters fee will be around 3-4%, so approximately Rs.15-20 crores. Due to an under-subscription if less than 500 crores was raised then it will be 3% of that lesser amount. It doesn't matter if it is oversubscribed - underwriters will still get only the 3-4% of the 500 crores - since thats the final cash that the company gets. Sometimes underwriters exercise a "green-shoe" option in case of the offering does very well. In a "green-shoe" the underwriters reserve some shares for themselves and will sell it at the market price during the offering and pocket the cash.

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Thank You Sir :)