Public Offers made Public - II

After introducing Public Offers in the first part, the major focus of the second part of the series will be to discuss some of the Regulatory Changes in Primary Markets in the recent past and their likely implications.

Reduction in IPO timeline from 22 days to 12 days: Market regulator SEBI has amended the existing rules regarding the time period between closure and listing of IPOs. The window has been reduced from 22 days to 12 days.

Following could be the implications of the above change:

• Reduction in uncertainty in market conditions over a long period (22 days). This shall bring down the market risk for the investors.
• According to CRISIL it will lead to a saving of Rs. 200 crore on account of interest on the savings as the subscription amount will now be blocked for fewer days.
• Pre-listing manipulations and scams will also be brought down.
• The reduced timeline shall stress on BRLMs (Book Running Lead Managers) and Registrars handling large issues which if largely oversubscribed will further add to the pressure.

The move is a step towards realigning Indian market practices with that of the developed markets globally. The timeframe in developed markets like U.S, U.K and Singapore is 3 days. Even emerging markets like Brazil and Hong Kong have achieved a 3 day timeline.

Institutional players’ margin increased from 10% to 100%: A direct implication of this is going to be the toning down of subscribed amounts by QIBs like mutual funds, domestic banks, FIIs and Hedge Funds. However the move shall definitely act as a level playing field among all investors and avoid sham bids and inflated demand from the institutions.

Retail investors given more time to invest in IPOs:  In a bid to attract more retail investors SEBI is planning to demarcate the days allocated for institutional and retail investors. The logic behind this is that retail investors usually follow the cues from the subscription levels of QIBs and invest accordingly in the closing stages. So, institutional investors shall be asked to submit their bids initially following which the retail investors can bid.

Introduction of Anchor Investor Concept for Public Issues: An Anchor Investor is one who is not the promoter of the company and can be issued as much as 30% of the issue portion reserved for QIBs. The Anchor Investor in chosen by the issuer through a bidding process one day prior to listing of the issue. The price to be paid is the Anchor Investor’s bid price or IPO price whichever is higher.

Following guidelines have to be followed by the Anchor Investors:

• Minimum application size has to be Rs. 10 crore
• 25% of the bid amount is payable on application and the remaining 75% within 2 days of the closure of the issue
• Lock-in period of the investments shall be 30 days

(This article has been taken from the report titled “Analysis of Recent Trends in Public Offers in the Indian Context (Legal and Financial aspects)” prepared by Rigved Mitra and Saket Saurabh under the guidance of Prof. V.K.Unni)