The Securities and Exchange Board of India (SEBI) is working towards better way to manage and issue shares in the primary market.
One of the important changes being mulled is introduction of the concept of an ‘anchor investor’ under which strategic investor would be allowed to pick up around 3 to 8 per cent of the shares on sale in initial public offers (IPOs). The logic is that such an investor can help in price discovery of IPOs.
Though SEBI has not disclosed this publicly, it has been holding discussions with market participants, who told Hindustan Times that the regulator is likely to present the move in a discussion paper shortly.
This follows a meeting of its primary markets' advisory committee held last month. SEBI officials could not be reached for their comments.
Market players believe that the move could open an opportunity for private equity and venture capital investors to participate in the IPO instead of the pre-IPO period.
Jagannadham Thunuguntla, Equity Head at SMC Capitals, said that though this would revive primary markets, its larger impact was not clear. “This will help in detailing a price band based on how anchor investors are investing in the IPO,” he said.
The SEBI proposal plans to allow a strategic investor to pick as much as 25 per cent of the total shares reserved for institutional investors during an IPO, which could be anything around 3-8 per cent of total shares of the company. However, the anchor investor would face a lock-in period of three months.
“Right now there is no major IPO activity happening. If there is an assurance of getting substantial shares from an anchor investor, it could increase interest in the primary market,” said Akil Hirani, Managing Partner at Majumdar and Co, a law firm that specialises in private equity.