IPO Investing 101: Lot Sizes, Oversubscription, and Allotment Explained

IPO coverage is full of specific terminology that can be confusing for first-time investors. Here are three terms you’ll want to understand before any future Dangote IPO subscription window opens.

Lot size: This refers to the minimum number of shares you’re allowed to apply for in an IPO, sometimes with additional increments beyond the minimum. Rather than being able to apply for any arbitrary number of shares (like one), IPOs often set a minimum lot to keep the number of individual applications manageable and standardize processing. Multiply the lot size by the offer price to get your minimum entry cost. Dangote’s minimum lot size hasn’t been announced, since no prospectus has been published yet.

Oversubscription: This happens when investor demand for an IPO exceeds the number of shares actually on offer, meaning more money has been submitted in applications than the company is selling shares for. Oversubscription is generally seen as a sign of strong investor confidence, though it also means not every applicant will receive the full number of shares they applied for. Safaricom’s 2008 IPO in Kenya, for example, was reportedly oversubscribed by several times its target, with investors ultimately receiving only a fraction of what they had applied for.

Allotment: This is the process of actually assigning shares to successful applicants once a subscription window closes. If an offer is oversubscribed, allotment is often done on a pro-rata or scaled-back basis, meaning investors receive a percentage of what they applied for, rather than the full amount, so that all valid applicants get some allocation rather than a random few getting everything. The exact allotment method (pro-rata, ballot, or another formula) is typically specified in the offer’s prospectus.

Understanding these terms in advance means that if a future Dangote IPO turns out to be heavily oversubscribed, plausible given the level of public interest already visible in search trends and media coverage, you’ll understand why you might receive fewer shares than you applied for, rather than being caught off guard by a reduced allotment.