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The IPO of Adani Power was the first in India
The concept of anchor investors came up in June this year following a directive by SEBI. Put briefly, anchor investors are entities which are offered, and subscribed to, shares in an IPO before the offer opens to the public.
Anchor investors belong to the Qualified Institutional Buyers (QIBs) category, which include mutual funds, foreign institutional investors, banks, and venture capital funds - domestic and international provident and pension funds.
These entities are deemed to be in a better position than regular investors to judge the fundamentals and prospects of a company.
Any new public offer of shares is split into sections, each of which is allocated to an investor group such as retail, non-institutional and so on. QIBs form the third investor group.
A company can carve out a maximum of 30 per cent of the QIB section and offer it to anchor investors. In terms of money, the minimum application size for each anchor should be Rs 10 crore.
Anchor investors also have to make available a margin of 25 per cent of their application and part with the balance within two days from the close of the issue.
An anchor investor will apply for these shares like a regular investor, at the prices it deems is the best fit. The offer for these investors opens - and closes - on the day before the whole issue is open to the public.
Once the entire issue, that is, to the public as well, is over and the issue price fixed according to the book-building process, anchor investors have to make up the difference if their price is lower than what has been fixed.
But should their price be above the fixed issue price, they have to forgo their cash.
As for the allocation among the anchor investors, while it is left to the company to decide it has to make sure that, for an issue size of up to Rs 250 crore, there are at least two investors and for issues bigger than that there are at least five.
The details of anchor investments have to be made public before the issue opens. For instance, among Adani Power's anchor investors were Credit Suisse (Singapore
Entities that belong to the promoter group of the issuing company or to the book running or lead managers to the issue are, however, barred from being anchor investors. Note that anchor investors are not allowed to sell their investments for 30 days after listing. This could mean that there may be fewer investors cashing in on listing gains.
Idea behind anchorinvestors:
What could have been the reasons for introducing the anchor investor concept in the first place? For one, anchor investors set a rough benchmark for issue pricing.
Secondly, attracting investors to public offers before they hit the market would have an effect of infusing a measure of confidence.
Along the same line, volume and value of anchor subscriptions may serve as an indicator of the company's reputation and soundness of the offer.
It could also be a move to pep up capital markets and prod a greater number of companies to tap the markets for funds following the dearth of offers in the past few quarters.
