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In a bid to allow smaller non-institutional investors (NII) a fair share of participation in initial public offerings, market regulator SEBI has proposed to earmark one-third of the allocation for NIIs with application sizes ranging between ₹2 lakh and ₹10 lakh. Proportionate allotment in case of NII category may be discontinued and draw of lots allotment to be introduced, as is currently applicable for retail individual investors (RII) category.
“Currently, NII allotment is done on a proportionate basis. The minimum bid size for an HNI applications is above ₹2 lakh. It is observed that a few large NIIs are able to crowd out smaller NIIs for allotment in an IPO,” SEBI said in a consultation paper.
From the analysis of oversubscribed IPOs (between January 1, 2018, and April 30, 2021), it was observed that in 29 IPOs, on average around 60 per cent of the applicants in the NII category did not get any allotment. In few cases, application for as large as ₹75 lakh was also unable to get allotment, SEBI said.
“It is expected that any public offering should aim to provide as diverse offering as possible with equitable opportunity at the retail and non-institutional level. The current methodology of proportionate allotment carries a certain risk where very large applications by few NIIs results in crowding out of other NIIs,” SEBI said.
Pitches for wide price band
SEBI also said that lately, it is observed that the price band as provided by the issuer company on the main board are extremely narrow, sometimes as small as ₹1, ₹2 or ₹3. “Narrow price band presents an opportunity to an issuer company to camouflage a fixed price issue as book built issue thus circumventing the conditions/regulations attached to the fixed price method especially related to allocation methodology,” SEBI said.
Primary Market Advisory Committee has recommended that a minimum price band in case of all public issues through book built process maybe 5 per cent. (i.e. the upper price should be at least 5 per cent more than the floor price).
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