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The year 2015 is pegged to the year of initial public offerings (IPOs). However, the first issue of the year has flopped, forcing the issuer to slash the issue price between 10 and 33 per cent and extend the closing date by a week.
The Rs 72-crore IPO of edible oil firm (NCML), which was supposed to close on Friday, failed to garner subscription from investors. The six-million share issue saw demand for less than 60,000 shares, or one per cent, forcing the company to slash the issue price and extend the closing date by a week.
NCML has cut the issue price band to Rs 80-90 apiece, about 10-33 per cent lower compared to erstwhile price band of Rs 100-120 per share.
Interestingly, the NCML IPO was banking non-institutional investor participation, which includes retail and high net worth investors (HNIs), to subscription.
The company has earmarked only 10 per cent of the issue for institutional investors, 63 per cent for retail and 27 per cent for HNIs.
The conventional quota for qualified institutional buyers (QIBs) is 50 per cent, retail is 35 per cent and HNI is 15 per cent.
Corporate Strategic Allianz, the investment bank handling the IPO, said NCML went for retail-backed offering as they weren’t too confident of institutional participation due to the year-end holiday period.
In 2012, market regulator Securities and Exchange Board of India (Sebi) introduced a new rule disallowing ‘spillover’ from the retail category to QIBs.
In other words, if any public issue fails to garner desired subscription in each of the categories, the issue had to be withdrawn. However, Sebi had allowed issuers to set the QIB portion from anywhere between 0 and 50 per cent.
Interestingly, this new rule was introduced by Sebi after a lot of small-sized offerings had succeeded solely based on retail subscription. Later, the market regulator had passed orders against these companies for market manipulation.
NCML, probably is the first IPO since the rule change, to go for a retail-backed public issue.
“As the IPO was launched in December-end, we were not too sure of institutional investor participation. Most of them are on holidays during the year-end period,” said Nevil Savjani, vice-president, Corporate Strategic Allianz.
Savjani blamed poor post-listing performance of Monte Carlo for dismal retail participation. Monte Carlo, which listed on December 19, has seen a drop of 16 per cent in its share price. Shares of the company ended at Rs 539 on Friday compared to issue price of Rs 645.
“Monte Carlo listed a discount that scared retail investors,” said Savjani. He said with the lowered price band and underwriting, NCML issue will be able to sail through.
Its IPO is aiming to raise between Rs 48 crore and Rs 54 crore with the lowered price band.
NCML IPO is an offer for sale from three existing shareholders of the company, including Mohit Nidhi Agro Oil, Sundaram Distributors and Jagprem Vyapaar.
In 2014, only five companies had come out with IPOs, raising a cumulative of Rs 1,200 crore, lowest in about a decade.
At least two dozen companies are currently awaiting regulatory approvals for launching IPOs.
SEBI’S RULE CHANGE ON PARTICIPATION IN IPOs
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Institutional participation must if 50% IPO is earmarked for QIBs (qualified institutional buyers)
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Spillover from retail to QIB not allowed for such issues
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Rule change in 2012 after slew of small IPOs were subscribed solely by small investors
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Issuers, however, allowed to set smaller quota for QIBs
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NCML has reserved only 10% of issue size for QIBs
