Smaller IPOs to sail as Sebi halves anchor threshold

Small is big. The Securities and Exchange Board of India (Sebi)  has reinforced the old adage with a tweak to anchor investor norms

The regulator has reduced the minimum application amount for anchor investors from `10 crore to `5 crore — a move experts say will lend support to small initial public offers in adverse market conditions. 

It has also decided to put a cap on the number of anchor investors.

Anchor investors are a special category of institutional investors introduced in mid-2009 who can be allocated 30% of the institutional quota and whose investments are locked-in for a period of 30 days from allotment.

Arun Kejriwal, director at Kejriwal Research and Investment Services, said the move will help bring in more investors, especially for companies with a smaller issue size. “Now companies coming out with small issues too can keep a portion of their order book reserved for anchor investors.”

Investment bankers also feel the move will help smaller issues sail.

“This will help smaller issues which may have had difficulty getting in anchor investors for Rs10 crore each,” said a banker.
The average issue size for initial public offers in the current financial year has been Rs165.39 crore, a 73.65% drop compared with the average issue size of `627.84 crore the previous year.
Out of 28 issues that have hit the market since the beginning of the financial year in April, 19 had an issue size of less than `100 crore.

The market watchdog has also tightened norms related to issue of warrants, which are offered along with public or rights issues.
It has capped the tenure of such instruments and asked for greater disclosures on the same.

“It has been decided to specify a maximum tenure of 12 months for warrants issued along with public/rights issue of securities to avoid the possible misuse. The issuer would also be required to provide disclosures about utilisation of funds so raised, both in the offer document as well as on a continuous basis,” said the Sebi note.

Sebi is trying to plug a loophole by making promoters disclose the utilisation of funds raised through these warrants, said Kejriwal. “Earlier, issuers used to specify the objects of the rights issue or public issue, but were not required to specify how they will use the money. Also, by specifying the maximum tenure, they are trying to reduce the uncertainty and the resultant dilution overhang associated with the time of conversion,” he said.

The regulator has also provided for a separate set of disclosures in the case of companies where venture capital or other funds are shown as promoters. It also approved an amendment to increase the networth of debenture trustees from `1 crore, a limit set in 2003, to Rs2 crore. The regulator has given them two years to meet the new requirements.

The top 100 companies by market capitalisation will have to begin including a business responsibility section in their annual reports. This will describe measures taken by them on the Ministry of Corporate Affairs’ guidelines on ‘social, environmental and economic responsibilities of the business.’   

This would eventually be extended to other companies in a phased manner, said the Sebi note.