Market regulator Securities and Exchange Board of India (SEBI) is considering allowing companies to allocate the unused quota in public offers exclusively to retail investors. The move is expected to further increase retail participation in government offers where the employee quota is usually undersubscribed while retail is oversold because of good pricing. “A proposal is under examination,” a SEBI official told ET.
At present, the unused employee quota in public offers is added to the net offer, which means it is distributed on a proportional basis to all categories of investors including retail, high net worth and institutional investors. Experts say the move will enhance retail interest and also suggest capping of employee quota.
“It makes sense to offer unsubscribed employee quote to retail as it will increase their chances to get allotment… if retail does utilise it, the quota can be given to other categories,” said Prithvi Haldea of Prime Database. Employers can allocate a maximum of 10% of the total offer to their employees as per the existing policy.
In most of the recent public offers, especially those by the state-run companies, the portion has been under-subscribed. Power Finance Corporation (PFC) had reserved 0.12% for employees in its recently concluded follow-on offer. The overall offer was subscribed 4.4 times.
The retail segment was subscribed two times while the employee quota only got 91% subscription. The Coal India IPO, the largest ever in India, had a 10% reservation for employees of the public sector enterprise. After lukewarm response from employees, the unused quota was allocated to other categories on a proportional basis. Similar was the case with other offers including that of NTPC and Manganese Ore.
The move may also have been prompted by concerns that employee quota can be manipulated by the management. “There should be a cap of how many shares an employee can subscribe to, to ensure that no employee acts on behalf of the management,” said Haldea. The overall cap on employee quota should be equal to the number of employees in a company and cap per individual employee.
A panel advising the market regulator SEBI had recommended that the quota be done away with. The move comes close on the heels of another pro-retail investors measure that allowed retail investors to place their bids at the discounted prices in public offers. As much as 50% of the shares on offer is reserved for qualified institutional buyers while 35% for retail investors.