The Role and Significance of Anchor Investors in IPOs
When you come across news about Initial Public Offerings (IPOs), you may have noticed the mention of “Anchor Investors.” These institutional investors play a crucial role in the IPO process, and their participation ensures stability and credibility for the offering. In this article, we will delve into the concept of Anchor Investors, their significance, and their role in IPOs.
What are Anchor Investors?
Anchor Investors, also known as “Cornerstone Investors,” are institutional investors who participate in a company’s IPO. They are Qualified Institutional Buyers (QIBs) and are allotted shares at a predetermined price, one day before the IPO opens for subscription. Each Anchor Investor is required to invest a minimum amount, typically 10 crores INR for Mainboard IPOs and 1 crore INR for SME IPOs. Concept Introduced by SEBI In 2009, the Securities and Exchange Board of India (SEBI) introduced the concept of Anchor Investors.
The category of QIB investors includes public financial institutions, banks, mutual funds, foreign portfolio investors, venture capital funds (VCFs), alternative investment funds (AIFs), and non-banking financial companies (NBFCs) who invest on behalf of their clients.
Role of Anchor Investors in IPOs
1. Providing Stability: By participating in the IPO, Anchor Investors bring credibility and stability to the offering. Their commitment to purchasing shares at a predetermined price helps establish a solid foundation for the IPO.
2. Indicating Market Sentiment: The involvement of Anchor Investors can serve as an indicator of market sentiment towards the IPO. Their decision to invest reflects confidence in the company’s prospects, which can influence other investors’ decisions.
3. Liquidity Support: Anchor Investors’ long-term commitment to holding shares can provide liquidity support in the secondary market, especially during the initial phase of listing.
4. Encouraging Retail and Institutional Participation: The presence of reputable Anchor Investors can attract both retail and institutional investors to participate in the IPO, further enhancing the IPO’s success.
Anchor Investor Allocation and Lock-in Period
1. Allocation: The total allocation to Anchor Investors cannot exceed 60% of the Qualified Institutional Buyers (QIB) portion and 30% of the total issue size.
2. Lock-in Period: The shares allotted to Anchor Investors are subject to a lock-in period. 50% of the allotted shares have a lock-in period of 30 days, and the remaining 50% have a lock-in period of 90 days from the date of allotment.
Bidding Rules for Anchor Investors
– The bidding process for Anchor Investors commences one day before the issue opens for subscription.
– Once they place a bid, Anchor Investors cannot withdraw or modify their bid.
– Anchor Investors must pay the total bid amount at the time of application.
– They can apply for shares up to the total number of shares proposed in the Anchor Investor category.
– No member of the promoter’s family, related party, merchant banker, or promoter can apply under the Anchor Investor category.
Anchor Investors play a vital role in the IPO ecosystem by providing stability, indicating market sentiment, and boosting investor confidence. Their participation ensures a successful IPO launch and lays the groundwork for the company’s growth in the public markets. As a cornerstone of the IPO process, Anchor Investors continue to be an integral part of the Indian capital markets, contributing to the overall development and expansion of the economy.
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