The stock markets recently had been flush with a series of IPOs. These IPOs presented good investment opportunities to different categories of investors ranging from retail to institutional investor categories. One of the many categories of investors in an IPO includes the anchor investors. Given below are the details of this category of investors and their role in an IPO.
Who are anchor investors?
Anchor investors belong to the qualified institutional buyers (QIB) category of investors. Other investors in the QIB category include mutual funds, FIIs (Foreign Institutional Investors), venture capitalists, pension funds, banks, PFs, etc. These investors are offered to participate in the IPO prior to when it is open for public subscription.
Anchor investors were introduced in the Indian stock markets in 2009 and the rules for these investors were revamped in 2022. The essence of anchor investors is to create a buzz for the IPO and show credibility and support for the issue. The extent of investment made by anchor investors indicates the quality of the IPO and the reputation of the company coming out with the said IPO.
Minimum investment and other rules for anchor investors to invest in IPO
The investment by anchor investors is subject to certain conditions that have been laid down by SEBI. These rules are highlighted hereunder.
- Anchor investors have to invest a minimum of Rs. 10 crore in the IPO.
- Mutual funds have the reservation of one-third portion in the anchor investor category.
- Anchor investors have the allocation of 30% of the total IPO.
- Among the QIB (Qualified Institutional Buyers) category, anchor investors have a reservation of up to 60% of the issue size.
- They are offered to invest in the IPO and gets confirmed allotment a day before the IPO is open for public subscription.
- Anchor investors have a lock-in period of 30 days during which they cannot sell their shares or offload their holdings. Also, after 30 days, they can only sell half of their holdings and the remaining half can be sold only after 90 days.
- If the offer size is less than Rs. 250 crores, there has to be a minimum of 15 anchor investors. When the offer size is more than Rs. 250 crores the maximum number of anchor investors can be up to 25.
- The shares allotted to the anchor investors are at a fixed price within the price band (usually at the upper end of the price band). If during the book-building process, the price of the shares is determined to be higher, anchor investors will have to pay the difference between such prices. However, if the price is determined to be lower than the price at which shares are allotted to the anchor investors, they will not get the difference back.
Role of anchor investors in IPO
The role of anchor investors in an IPO is explained below.
- Anchor investors are among the core investors of any IPO.
- Investment by anchor investors is crucial in boosting the confidence of mainly retail investors.
- Retail investors usually look for online reviews before investing in an IPO. Anchor investors, however, have a thorough and detailed analysis of the company and the IPO itself thereby enabling a professional and practical approach towards it.
- By investing in the IPO, anchor investors provide authenticity to such IPO and also aid in better price discovery.
What is anchor investors’ lock-in period in IPOs?
As mentioned above, the investment made by the anchor investors is subject to a lock-in period of 30 days. This lock-in period was put in to avoid the huge market volatility if the anchor investors were to offload their holdings to make listing gains from the open market. However, it was observed that after the completion of 30 days, when the anchor investors pooled out their money by selling their stake in the open market, it created a huge slump in the share prices of such a company, ultimately creating a panic among the retail investors and impacting their interests.
Therefore, in order to safeguard their interest, SEBI laid out revised regulations according to which after the completion of 30 days, anchor investors can sell only half of their stake and the remaining half can be offloaded after the completion of 90 days. These regulations from SEBI are aimed to bring better stability to the share prices of such stocks and the market as a whole.
Anchor investors as their name suggest, provide stability to an IPO and generate public interest in it. They are, therefore, given the priority chance to subscribe to the shares of the company at a fixed price instead of bidding within the price band which is the case for retail investors. Retail investors should therefore focus on the list of anchor investors to know how much they are favoured by them to ascertain the quality iof the IPO and if they are a good addition to their investment portfolio.
The different categories of investors in an IPO are Qualifies Institutional Buyers or investors, Non-Institutional Investors, and Retail Investors. Anchor investors are part of Qualified Institutional Buyers and have a 60% reservation in this category.
The lock-in period for anchor investors is 30 days from the date of allotment after which they can offload 50% of their holding. The balance of their holding can be offloaded after a period of 90 days from the date of allotment.
The list of anchor investors can be found in BSE Notices and NSE Circulars a day before the IPO will be open for public subscription.
The minimum investment to be made by the anchor investors is Rs. 10,00,00,000.