The Hindu Business Line : `No arbitrary allotment of shares in book-building IPOs'

SEVERAL investment bankers have conceded that there is discretionary allotment of shares in the institutional investors segment (QIB) in book building IPOs, but not as arbitrary as alleged by some investors.

These investors have criticised the allotment process in the QIB segment of book built public issues saying that investment bankers prefer their own set of investors.

Investment banking sources said that there are certain set parameters adopted from the international markets while making allotment to qualified institutional buyers in book built IPOs.

Officials at investment banks said that in the Indian context QIB category is bifurcated into three segments; FIIs, Mutual Funds and domestic financial institutions & banks.

FIIs have been categorised into long accounts and arbitrage accounts (for hedge funds). Hedge funds get less preference over long accounts even if both of them have applied for the same number of shares. Within the long accounts, bankers look at exposure of the FII in emerging markets and the Indian market.

They also look at exposure to the sector in which the IPO has come and their past experience in IPOs in India. So FIIs with high exposure to emerging market and Indian market get more shares.

"Book runner prefers stable and long term investors in the IPO. We don't want FIIs to exit just after the listing of shares," said a senior official with an investment-banking firm.

There is also a preference to FIIs who apply on the first day of opening of the IPO, compared to those who apply at later days. FIIs who apply on the first day are called `anchors' and those who apply on the last day as `momentum players'.

In the case of mutual funds, the allotment is based on the asset under management in the equity segment. So if a mutual fund has Rs 5,000 crore of assets in equity and another fund has Rs 2,500 crore and both of them apply for 10 lakh shares in an IPO then the fund with lower assets will get less number of shares.

However, for domestic financial institutions such as LIC and other insurance companies, they are normally allotted shares depending on the over subscription. "For insurance companies like LIC if they apply for one lakh shares, these shares are allotted to them as they are long term investors and don't sell immediately on listing. For banks, the investment bankers have not received good response from them in IPOs except in bank issues."

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