IPOs get a new anchor

Securities Exchange Board of India (Sebi) has amended the public issue guidelines on a few fronts to allow anchor investors in public issues. These are the people who will stick their neck out in an issue to take a big chunk at a predetermined price.

Here are the changes:|

New listings only on a national exchange
Most initial public offers, issues by unlisted companies, are done either on the BSE or the NSE, which have nationwide trading terminals. But there was no specific law mandating them to do so. It could, for example, allow companies to list on a regional exchange like Kolkata, and then list on the national exchanges. This may result in lower scrutiny which is not good.

In an offer for sale, total period of holding to be considered for lock-in
If any investor wants to offer shares held in a company, on sale in a public offer, the shares should have been held for at least one year. Sebi has now said that if the shares were allotted upon conversion –from global depository receipts, compulsorily convertible debentures- then the complete holding period will be considered. For example, if the debentures were held for five months before conversion, the shares can be offered in a public issue, after seven months.

Anchor Investor: Key Features

Who can and can’t be an anchor investor?
Only qualified institutional investors can be anchor investors in an issue. Any person related to the promoter or lead managers to the issue cannot be an anchor investor.

What does an anchor investor do?

  • An anchor investor will be eligible to apply for one-third of the issue reserved for institutional investors (normally 50%). Thus, 15% of an issue will be reserved for them, with 4.5% from this carved out for mutual fund investors.
  • This will be for book-built issues only. A day before the issue opens, anchor investors can bid for shares in the issue at any price. The minimum bid size will be Rs 10 crore and there must be at least two investors for issues up to Rs 250 crore and at least five investors for issues up to Rs 500 crore.
  • The investment bankers will make public the price and number of shares allocated to anchor investors. They will pay a margin amount of 25% and the rest within two days of the issue closing.
  • If the anchor investor’s offer price is lower than the book-built price, they will pay the difference. But if they have bid higher, their price will not be lowered. Normally, investment bankers know the offer range, so they will keep the lower end of the bidding range as the reserve price.
  • Their shares will be locked in for 30 days from the date of allotment. Since listing happens with a small lag after the shares are allotted, the actual lock-in period will be lesser.

The Sebi (Disclosure and Investor Protection) Guidelines, 2000 are to be followed by all issuers and intermediaries who want to raise money through the equity market.

The amendments to the guidelines are available here and if you want to read the complete and updated guidelines, you will get it here.

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