what is meant by under writing of shares?explain the methods of under writting

Hello,

Underwriting of shares involves a financial institution, the underwriter, agreeing to buy shares from a company before its IPO to ensure the company raises the desired capital. Methods include firm commitment, best efforts, standby, and bought deal underwriting. Each method varies in risk and responsibility for the underwriter and benefits for the company.

Hope this helps you,

Thank you

Hii There,

Underwriting of shares refers to the process by which an underwriter, typically an investment bank or a financial institution, agrees to purchase shares from a company issuing them (the issuer) at a predetermined price. This agreement provides the issuer with the assurance that the shares will be fully subscribed, even if the public does not fully subscribe to them.

There are three main methods of underwriting:

1. Firm Commitment Underwriting : In this method, the underwriter commits to purchasing all the shares offered by the issuer at a specified price. The underwriter assumes the full risk of reselling the shares to investors. If the shares are undersubscribed, the underwriter must purchase the remaining shares.

2. Best Efforts Underwriting : Here, the underwriter agrees to make its best effort to sell the shares to the public at the offering price. However, the underwriter does not guarantee the sale of all shares and is not obligated to purchase any unsold shares.

3. Standby Underwriting : This method is often used in rights offerings. The underwriter agrees to purchase any shares that existing shareholders do not buy during the rights offering. The underwriter acts as a backstop, ensuring that the issuer raises the intended capital.

I hope this answers your question.

Thanks