What Is Subscribed?
The term subscribed refers to newly issued securities that an investor agrees or intends to buy prior to the official issue date. When investors subscribe, they expect to own the number of shares they designate once the offering is complete. This is common with institutional investors who are guaranteed shares by subscribing to a company's initial public offering (IPO) before knowing the actual IPO price on the first day of trading.
- Subscribed is a term used to describe newly issued shares that an investor agrees to purchase before the official issue date.
- Subscriptions are common during IPOs and subsequent stock offerings.
- Institutional or accredited investors are most often those eligible to subscribe to a new issue.
- Being oversubscribed means that an offering has higher demand compared to the number of available shares while being undersubscribed means that demand is lower.
- Investors must conduct due diligence, including reading through the offering's prospectus, before they subscribe to an offering.
Private companies that want to raise capital can do so by making an offering, such as an IPO, by going to the market and selling shares. Companies hire investment banks to act as underwriters and set the price for the offering. The bank's goal is to have the right number of subscribed investors for the issue. To be subscribed means that an investor either buys or agrees to purchase a set number of shares during an offering.
Investors, such as institutional investors, and accredited or high-net-worth individuals (HNWIs) can view a subscription and make orders to purchase soon-to-be issued shares from their brokerage firms. These options are generally not available to retail investors.
The investment bank tries to determine the best offering price that will result in an optimal number of share subscriptions—too many subscriptions won't impress the issuing company, as the company is likely to prefer a higher offering price. Conversely, too few subscriptions may result in the investment bank being unable to sell its entire inventory of the security issue, exposing it to significant losses.
An issue is considered fully subscribed when it is subscribed at just the right amount. Another expression sometimes used for fully subscribed is the slang term "pot is clean." But there are cases when demand is much higher and much lower than expected:
- Oversubscribed: This occurs when demand for an IPO is greater than the number of shares issued. When a new security issue is oversubscribed, the offering entity can adjust the price or offer more securities to reflect the high demand. To compensate, companies can offer additional shares, raise the security's price, or offer a combination of the two to meet demand and raise more capital in the process.
- Undersubscribed, on the other hand, is a situation in which the demand for an initial public offering of securities is less than the number of shares issued. This situation is also known as an "underbooking." Undersubscribed offerings are often a matter of overpricing the securities for sale.
Subscribed Deals and Prospectus Reports
The prospectus for a new offering is a detailed document that potential investors study before subscribing to a new issue. A formal legal document required by the Securities and Exchange Commission (SEC), the prospectus provides information about an investment offering for sale to the public. This includes basic details, such as the name of the issuer, the amount and type of securities for sale, and the number of available shares (for a stock offering).
The prospectus also provides other information, such as:
- Whether an offering is a public or private placement
- Any underwriting fees
- The names of the company’s principals
An overview of the company’s financial statements, the background of its management, a section wherein the management describes the company’s current state and future goals for growth (management discussion and analysis), and the risks section are all also important.
A preliminary prospectus is the first document that a security issuer circulates, which contains details of the business and transaction in question. This is followed by the final prospectus, which comes with background information (the exact number of shares or certificates issued and the precise offering price). The final prospectus is printed after the deal becomes effective.
Pay attention to information that is unique to that company—not just the legalese that all public companies incorporate into their filings when you're reading a prospectus.
Stock Subscription Rights
Existing shareholders have certain rights available to them, especially when it comes to secondary and subsequent offerings. These are called stock subscription rights. These rights provide existing shareholders with an equal percentage of ownership when they subscribe to any new offerings and issuances. And it normally comes at or under market prices.
These rights are also referred to as a shareholder's subscription privilege, preemptive right, or anti-dilution right. But keep in mind that any stock issued through subscription rights effectively increases the number of shares in the market. This means that shareholder ownership is diluted as is the value of each share.
Example of Subscribed
Here's a hypothetical example to show how subscriptions work. Let's say Company ABC is going to make 100 shares available in an upcoming public offering. The underwriter does its due diligence and sets a fair market price of $40 per share. The bank offers these shares up to investors at that price and the investors agree to buy all 100 shares. The offering for ABC is now fully subscribed, as there are no remaining shares to sell.
If the underwriters priced the shares at $45 per share to make a higher profit margin, they may have only been able to sell half of the shares. This would have left the stock undersubscribed. As such, half of the stock would remain unpurchased and subject to a reoffering at a lower rate—say at $35 per share.
If the underwriter originally priced the shares at $35 per share to hedge their bets (guaranteeing that all shares sold since they were priced aggressively), they would have shorted the ABC company $500 in this transaction or $5 per share. They would have also risked creating a bidding situation where some of their potential investors would be priced out of ABC’s stock.
What Is Subscribed Share Capital?
Subscribed share capital refers to any capital raised through subscribed shares. Put simply, it's the value of all the shares that investors agree to purchase during a new issuance. Subscribed shares are a certain amount of stock that investors promise to purchase during an offering, usually through an IPO.
What Does Subscribed Mean in Law?
In a legal context, the term subscribed means that you write and sign your name at the bottom or end of a document. This signifies that you're the creator of the document (such as a letter) or that you agree to the terms of a contract.
What Does Subscribing Mean on YouTube?
Subscribing on YouTube allows you to access new and existing content posted by specific users. It also provides you with updates from the user and other activity on the page, such as comments and favorite videos voted by other subscribers.
Who Has the Most Subscribed YouTube Channel?
The YouTube page with the most subscribers was T-Series, which is an Indian music service. The company had 206 million subscribers as of February 2021. YouTube Movies had the second-largest number, with 149 million subscribers, followed by Cocomelon (Nursery Rhymes) with 131 million subscribers.
The Bottom Line
Going public and issuing new stock is a great way for private companies to raise the money required to fund their operations and achieve the growth that they need to be successful. Companies hire investment banks to promote, underwrite, and engage new investors (and existing ones in the case of subsequent offerings) to subscribe to the offering.
Being subscribed means that there is enough demand for the total number of shares available. Investors that choose to subscribe should make it a point to read the basic details listed on the prospectus provided by the company to the SEC.