Big issuers lure small investors with discounts

Big-ticket issues in the primary market will continue to lure retail shareholders with innovative schemes. Retail shareholders, who are expected to get at least 5 per cent price discount for ICICI Bank's imminent follow-on offer, will get bonanzas from big issues, according to market participants.

While SBI is expected to hit the market with a Rs 5,000 crore follow-on issue in December, Emaar-MGF is likely to launch a public issue of a similar size. HDFC also plans to launch a Rs 2,500 crore issue.

Vivek Jain, manager, institutional equities at Edelweiss Capital, says any big issue will offer sweeteners to small investors to get their participation, which in turn makes the shareholding diverse and stable. The bonanza may come in the form of price discount, deferred payment or any other form, he adds.

Market participants cite examples of recent big-ticket public issues, including DLF, Reliance Petroleum and ICICI Bank's follow-on issue in 2005.

While DLF and Reliance Petroleum offered part-payment facilities to retail investors on application to the issues, ICICI Bank gave 5 per cent discount to them in 2005. ONGC had also offered price discount to retail shareholders three years ago.

ICICI Bank, in addition to price discount, will also keep 5 per cent of the issue size reserved for its existing retail shareholders.

The head of capital market of a foreign bank, who did not wish to be named, says the price discount is required for big-ticket follow-on issues as retail shareholders are not keen to subscribe to the issue at market price.

For example, the price band of ICICI Bank's Rs 10,000 crore offer, including a greenshoe option, will be linked to the market price of the stock on June 18.

Institutional investors and qualified institutional buyers have no problems to subscribe to an issue at market rate. For them, allotment of a large chunk is more important. But a small investor is not excited to apply to the issue at the ruling market rate. In that case, he may buy from the secondary market, he points out.