71% of anchor allotment for LIC IPO made to 15 mutual funds: What this means
NEW DELHI: Ahead of its mega opening on Wednesday, Life Insurance Corporation has raised around Rs 5,620 crore from anchor investors, the maxible allowable limit. Anchor investors subscribed to a total of 5,92,96,853 equity shares at Rs 949/- per equity share.
Anchor investors are institutional investors that are allotted shares before the subscription opens for retail and other investors, and have to commit to holding their shares for a certain period after listing. Out of the total allocation, 71.12% were allocated to 15 domestic mutual funds through 99 schemes.
The anchor investors include mutual funds like ICICI Prudential, SBI Equity Hybrid Fund, SBI Blue chip fund, HDFC Hybrid equity fund, Aditya Birla Sun Life, Axis Mutual Fund, HCL Corporation, SBI Flexi cap fund, Nippon Life, Kotak Mahindra Life Insurance, Franklin India Flexi cap etc. SBI Mutual Fund subscribed to shares worth over Rs 1,000 crore, ICICI Prudential MF subscribed to shares worth over Rs 700 crore, HDFC MF subscribed to shares worth over Rs 650 crore.
Among foreign funds, Singapore’s sovereign wealth fund (GIC) subscribed to shares worth over Rs 400 crore while BNP Investments subscribed to shares worth nearly Rs 450 crore. In order to improve price discovery during the initial public offering process, market regulator Sebi introduced anchor investors in the Indian IPO market in the year 2009.
This process was aimed at improving investment opportunity for retail investors and to boost the credibility of the issuing firm in the new issue market, so that all participants in the market can gain confidence.
“Anchor investment reduces underpricing i.e. one of the largest costs faced by the firm going public is the implicit cost of underpricing. This indicates that anchor-backed IPOs exhibit better pricing efficiency than non-anchor backed IPOs. Additionally, it can be interpreted that anchor participation reduces the cost of the firm going public and provides sufficient indication to the investors regarding fair valuation of the issue.
We also find that anchor investment elicits more response from potential investors. Anchor-backed IPOs are subscribed to at a better rate than non-anchor backed IPOs. Both qualified institutional investors and retail individual investors subscribe more to anchor-invested IPOs than non-anchor invested issues. These results indicate that investors in general and retail investors in particular believe that anchor investment provides credible certification about quality of the issue,” said Seshadev Sahoo, Professor of the Finance and Accounting area at Indian Institute of Management Lucknow.
Market regulator Sebi recently said the existing lock-in of 30 days will continue for 50% of the portion allocated to anchor investors and for the remaining portion, a lock-in of 90 days from the date of allotment will be applicable for all issues opening on or after April 1.
The change in the anchor lock-in rules is to avoid sell-off by anchor investors. The IPO has reserved 2.96 crore shares for non-institutional buyers: up to 15.8 lakh shares for employees and 2.2 crores for policyholders. While retail investors and LIC employees will get a discount of Rs 45 per share, LIC policy holders will get a discount of Rs 60 a share. LIC is likely to be listed on the bourses on May 17.
The government is expecting retail investors and even LIC policy holders to make a beeline for the issue. LIC estimates up to 70 lakh retail applications, which is more than five times the average retail applications received for the Indian primary equity market issuances in the last financial year.
In fact half of the retail subscriptions are expected to come from the country’s western region, including Maharashtra, Gujarat and Rajasthan, reported Economic Times. “The Government is only diluting 3.5% and will continue to hold 96.5% of the company. The free float will be less and may create scarcity among institutions that wants to build positions in the company.
This may create artificial demand in the short term, till the Government dilutes further stake in the company. The IPO price band is set at Rs 902 to Rs 949 per equity share. The policyholders will get a discount of Rs 60 per share, while retail shareholders & employees will get a discount of Rs 45 per share. This probably means the shares on offer will be absorbed comfortably by retail and institutional investors,” said Anoop Vijaykumar, smallcase manager & Fund Manager and Head of Research, Capitalmind. Why is the LIC IPO so important?
“As they provide special discounts to the LIC employees as well as unitholders, it will potentially tap into a very large section of the market that so far might not have invested in IPOs. The LIC IPO brings transparency to its consumers, as it will be accountable to the government as well as the former, investors, and exchanges. While this improves the quality of corporate governance of the firm, it also shall help raise a substantial amount of money for the government,” said Kanika Agarrwal, Co-founder and Chief Investment Officer, Upside AI.