Taking a cue from the successful experience of Engineers India and SKS Microfinance, both public and private sector issuers are likely to close the bidding for qualified institutional buyers (QIBs) a day earlier in public issues. This will give retail investors a clear idea about the demand for their offers among institutional investors. The growing retail investment numbers are fuelling the positive sentiment.
The Rs 977-crore Engineers India follow-on public offer (FPO) was the first public sector issue to close the bidding for QIBs a day earlier than other categories of investors. The issue got an overwhelming response from institutional investors and was subscribed 23.43 times in the QIB category. It was subscribed around three times in the retail category. The high profile Rs 1,654-crore SKS Microfinance issue, till the time of going to press, had seen the retail segment having over 2.5 times subscription. When the issue was closed for QIBs on Friday, the retail segment had seen subscription of around 0.16 times.
Good response from retail investors for the Engineers India FPO is seen as a major boost for the government’s disinvestment programme, with public sector enterprises looking to raise around Rs 40,000 crore in the current financial year. “The option to close the QIB book a day prior to other categories has turned out well for the Engineers India issue,” said Sumit Bose, secretary, department of disinvestment, ministry of finance. “We will also look at how it works for other private sector issues and decide for this option in future government issues.”
Retail bidding for primary market issues has been catching up since April, with seven of the 13 issues to hit the market seeing strong retail subscription. This is a marked improvement from the previous months, when issues struggled to get retail investors’ attention.
The Securities and Exchange Board of India on April 13 amended the Issue of Capital and Disclosure Requirements regulations. In the revised norms, the issuers may close the bidding by QIBs a day prior to the closure of the issue for other categories of applicants.
“Retail investors get confidence knowing that QIBs have invested in the issue in advance and can take a better decision,” said Madhabi Puri Buch, chief executive officer and managing director of ICICI Securities, one of the book running lead managers for the Engineers India FPO.
Parabolic Drugs, which came out with an IPO on June 14, was the first company to close the QIB book a day in advance.
The mandatory requirement for QIBs to make 100 per cent upfront payment with their application in public issues from May 1 has also played a major role in issuers opting to close the QIB book a day earlier, experts said.
| GOOD SHOW | ||||
| Issues | Companies | Overall subscription | QIB | Retail bidders |
| 1 | Talwalker Fitness | 28.10 | 35.43 | 8.20 |
| 2 | Tarapur Transformers | 1.65 | 0.03 | 2.58 |
| 3 | Mandhana Inds | 5.44 | 7.97 | 2.62 |
| 4 | SJVN Ltd | 6.51 | 9.02 | 3.03 |
| 5 | Aster Silicates | 4.68 | 0.00 | 3.88 |
| 6 | Technofab Engg | 12.54 | 3.98 | 9.90 |
| 7 | Engineers India | 13.36 | 23.43 | 2.99 |
Because of this requirement, almost all QIB bids were coming on the very last day of the issue where the book was closing on the same day for all applicants, making it very difficult for retail investors to judge the appetite among institutional investors.
“Retail investors typically follow the institutional investors. As QIB bids were coming on the last day, retail investors had no time to judge the demand for the issue,” said Prithvi Haldea, chairman of Delhi-based Prime Database. “Closing the QIB book a day prior to other investors will become the only way going forward in public issues,” he added.
Bajaj Corp, whose issue opens on Monday, and Prakash Steelage have also opted to close the QIB book a day earlier than retail and non-institutional investors.
