Saibal C. Pal

On 5th March,2010, SEBI announced that it would be mandatory for `Qualified Institutional Buyers’ (QIBs) to put in 100 per cent of the application money towards subscription of shares in capital  issues through offers. This would come into force from 1st May, 2010. Presently, QIBs are required to pay just 10 per cent of the share value on application and  Anchor investors are required to pay 25 per cent on application and  balance payment  is required to be paid  on allotment.

QIBs must be registered with SEBI. It is important to know the names of institutions included under QIB which is  defined in R 2 (zd) of the SEBI (Issue of Capital and Disclosure Requirements) Regulation, 2009 (`ICDR’). The list of QIBs is given as under. One common feature is that they must be registered with SEBI :

(i)   mutual fund, venture capital fund and foreign venture capital investor;(ii)  foreign institutional investor and sub-account (other than a sub-account which is a foreign corporate or foreign individual),registered with the Board;(iii)  public financial institution as defined in S 4A of the Companies Act,1956;(iv)  schedule commercial bank;(v)   multilateral and bilateral development financial institution;(vi)   state industrial development corporation;(vii)   insurance company registered with the Insurance Regulatory and Development Authority;(viii)  provident fund with minimum corpus of twenty crore rupees;(ix)   pension fund with minimum corpus of twenty five crore rupees;(x)  National Investment Fund set up by resolution F.No. 2/3/2005- DDII dated November,23,2005 of the Government of India published in the Gazette of India;(xi)  insurance funds set up and managed by army, navy or air force of the Union of India.

`Anchor investor ‘ has come to play an important role in public issues. The time is defined in R 2© of ICDR  to mean a qualified institutional buyer who is required to put in an application for  value of ten crore rupees or more  made through the book building process in accordance with the provisions of  ICDR.

QIBs play an active role in both in public issues and private placements. In the years 2008, 2009 and 2010 (upto February) corporate India raised 60 per cent of the domestic fund through the QIB route with participation in  68 issues raising  Rs 45,138 crore. While in 2008 there were 8 issues raising Rs 3586 Cr, in 2009 there were 53 issues raising Rs 38,676 crore and in 2010 till February there have been 7 issues raising Rs 2,876 crore.

In the follow-on public offering of NMDC which closed on 12th March,2010, QIBs subscribed to 2.28 times their reserved portion which  aggregates  to Rs 37.7 crore. Of the QIBs, LIC bid close to 60 per cent of the issue which is 20  crore shares and put in Rs 6,000 Crore. Other QIBs namely, SBI, Indian Bank and Bank of Baroda participated. FIIs in the category bid for only 83.4 lac rupees.

Overall subscription amounts to :

Category –wise No. of times
QIBs 2.284
Non-Institutional Investors 0.22
Retail Investors 0.218
Employees 0.066

NMDC issue was subscribed 1.24 times. Bids totaling 41.2 crore shares were received against 33.2 crore shares. Price band for the issue was fixed at Rs 300-350. Most bids were received at the lower end. On 12th March,2010 NMDC closed at 362.7 on BSE. It is evident that QIBs are making their presence felt in the capital market. However, SEBI is keen of a level playing ground for the QIBs and retail investors.

To re-capitulate on the NMDC issue, QIBs were granted reservation in the issue as under:

1.    No. of Equity Shares. Upto 165,250,000 Equity Shares or Net Offer less allocation to                       Non-Institutional Bidders and Retail Individual Bidders.
2.   Percentage of Offer      size available for allocation Up to 50 per cent of the Net Offer
3.  Basis of Allotment if the      category is oversubscribed Proportionate as follows:

(a) 8,262,500 Equity Shares shall be available for allocation on a  proportionate basis on Mutual Funds only; and (b) 156,987,500  Equity Shares shall be available for allocation on a proportionate Basis to all QIBs including Mutual Funds receiving allocation as per  a) above.4.  Minimum BidSuch number of Equity Shares in multiples of [.] Equity Shares   so that   the Bid Amount exceeds Rs 100,000.5.  Maximum BidSuch Number of Equity Shares in multiples of [.] Equity Shares so  that  the Bid does not exceed the Net Offer, subject applicable limits.6.  Mode of AllotmentCompulsory in dematerialized form.7.  Bid Lot[.] Equity Shares and in multiples of [.] Equity thereafter.

The above reservation has been done keeping in view the existing provisions. Prior to SEBI Circular dated September,19,2005 allotment to QIBs was on discretionary basis. Allocation is permitted to Retail Individual Ivenstors(RIIs), Non Institutional Investors (NIIs) and Qualified Institutional Buyers(QIBs) shall be in the ratio of 35:15:50. In case of book built issues the mandatory allocation in the issue is 60 per cent to QIBs in terms of Rule 19(2)(b) of the Securities Contracts(Regulation)Rules,1957 and the allocation for RIIs is 30 per cent and 10 per cent for NIIs. This is a transitory provision pending harmonization of QIB allocation as per the aforesaid Rule with that specified in the guidelines.

QIBs have come to occupy an important role in the capital market. Growth of the market will require its support but parity with retail investors is necessary so SEBI has announced the change in norms for QIBs in issues so that there is no case of discrimination raised by any quarter to upset role of QIBs in issues. With disinvestment of PSUs in the pipe line QIBs are set to enjoy a commanding position in the capital market in India.

1. Copyright with author. 2. Email: [email protected]

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  1. Suhita Mukhopadhyay says:

    The Article is well presented, superbly articulated and contains the most updated informations
    Suhita Mukhopadhyay
    Company Secretary

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