Sebi allows anchor investors in IPO market

Sebi allows anchor investors in IPO market
The Financial Express, Corporates & Markets, June 19, 2009, P1

fe Bureau, Mumbai

In a move that would boost confidence of investors in the IPO market, market regulator Securities & Exchange Board of India (Sebi) has allowed anchor investors (qualified institutional investors) in initial public floats of companies with a lock-in of 30 days from the day of listing. The Sebi has also made it mandatory for unlisted companies tapping the capital market to get listed in at least one exchange having nationwide terminals.

Market experts say both these steps would help in raising the confidence and quality of the primary market in India. Normally, whenever a company comes out with an initial public offer, its success or failure depends on the response it gets from the qualified institutional buyers. Retail investors largely apply for an IPO only on the closing date, after seeing the response of institutional investors.

“Issuers felt that if some qualified institutional buyer is ready to invest even before the public issue, it would give confidence to retail investors,”said Sebi chairman CB Bhave today, while announcing the board's decision.

Reacting to the development, Deven Choksey, MD, KR Choksey Securities, said: “The anchor investors would provide a safety net for IPOs in adverse market conditions. With anchor investors stepping in, retail investors would feel more secure and comfortable in subscribing to any public issue."

The anchor investors are supposed to bring in 25% upfront money before the issue and the remaining 75% within two days of allotment. Moreover, no person related to the promoter or promoter group and book running lead managers can apply as anchor investors to ensure more certainty to transactions.

"By not allowing promoters or promoter-related groups to apply as an anchor investors, Sebi has ensured that round tripping of promoters' money would not happen. This would also ensure that the anchor investors are knowledgeable and genuine, which would give a positive signal to other investors," said, Amitabh Chakraborty, president (equity), Religare Securities.

Making it mandatory for unlisted companies to get listed in a stock exchange having nationwide presence would weed away poor quality IPOs and ensure that only genuine companies tap the market, felt Choksey.

Regulator diktat

•Sebi has made it mandatory for unlisted companies tapping the capital market to get listed on at least one exchange having nationwide terminals

•Whenever a company comes out with an IPO, the success or failure depends on the kind of response it gets from QIBs

•Anchor investors are supposed to bring in 25% as upfront money before the issue and the remaining 75% within two days of the allotment