The capital market regulator has clipped the wings of merchant bankers which used discretionary powers to allot shares to favourite institutional entities as part of the anchor investor (AI) mechanism. The Securities and Exchange Board of India (Sebi) has tweaked the norms, to make the allotment more robust and transparent.
Sebi has prescribed the maximum and minimum number of anchor investors that have to be allotted shares, depending on the size of the issue. The current norms require at least two anchor investors if the issue size is Rs 250 crore, exceeding which there has to be at least five such entities.
The regulator has proposed a minimum of two and a maximum of 15 AIs for an allotment tranche above Rs 10 crore and up to Rs 250 crore. This will be subject to a minimum allotment of Rs 5 crore per AI.
Further, a minimum of five and maximum of 25 AIs for an allotment tranche of more than Rs 250 crore has been proposed. For an allotment tranche up to Rs 10 crore, a maximum of two AIs have been proposed.
The finer details have come on the heels of the Sebi decision that pegged the minimum allotment size for AIs to Rs 5 crore. The current norms are silent on the size of allotment, while mentioning the minimum application size at Rs 10 crore.
The concept of anchor investors was introduced in June 2009. These are allotted shares a day before the issue opens for subscription and this comes with a lock-in clause of 30 days.
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The Sebi move is based on an analysis of the allotment made to AIs in several public issues. It revealed that the segment was used as a licence to give assured allotment to as many institutional investors as the book running lead managers wanted. In some of the instances, even in small issues, there were a number of anchor investors, with a far lower average allotment size when compared to the mandated application size.
“The market participants, thus, used the discretion given to them for allotting shares to a large number of QIBs, which was not the regulatory intent when the concept was envisaged,” noted a Sebi paper. According to the Primary Market Advisory Committee, this was possible in the absence of any cap on the number of anchor investors in an issue.