Difference between Retail, Non-institutional, Anchor and QIB Bidders
The distinction between retail, non-institutional investors and QIBs is meant more
to reach out to different types of audiences. In a book built issue, there is a
separate quota that is assigned to each of these categories. Any under-subscription
in any of these categories can be made up by allocation to another category where
there is an oversubscription.
What role does each of these categories of investors play?
The QIB portion is allocated to the qualified institutional buyers (QIB) and the
allocation is 50% in case of book built issues. This segment of institutional investors
include the mutual funds, insurance companies, global portfolio managers, registered
FIIs, sub accounts of FIIs, sovereign funds, endowment funds, college superannuation
funds etc. They act like anchor investors in most cases and the actual price determination
will be done based on the QIB demand. The retail demand is more about the broad
based appetite for the issue and the retail spread of ownership. The non-institutional
segment is the HNI demand emanating from informed and savvy investors.
How the 3 categories of investors interplay in an IPO?
Role of QIBs
The QIB portion is the institutional portion which includes investors from the domestic
and the foreign fund managers. Only entities registered with SEBI as institutional
investors can invest in this quota. The book built issues have a 50% quota of an
issue reserved for the QIB portion and this allocation is entirely done on a discretionary
basis depending on oversubscription.
The QIB investors are only required to put up 10% of the total application amount
in any book built IPO as their share of the margin and the balance is payable only
when the actual allotment is finalized. This enables QIBs to use money more efficiently.
QIB investments act like a guide for the other categories of investors and are also
the key to the IPO’s global profile.
In any book built issue, the retail portion has a 35% allocation of the total issue
size. Retail investors are defined as any investment up to Rs.2 lakhs in a single
issue and under a single DP id. Retail investors can apply for the IPO either offline
or they can also apply online using their internet trading account to map with DP
id. DP account is a must for IPO application.
Retail investor portion is important to any IPO as it shows the popular acceptance
of the IPO story. This reflects the genuine demand that the company’s IPO has been
able to generate and is important to companies as it helps them to broad base their
investor base. Retail investors have to put the entire money upfront but now SEBI
permits retail investors to use the ASBA facility. Under the Applications Supported
by Blocked Amounts (ASBA), the bank account to the retail investors only gets blocked
to the tune of the application amount. On the date of allotment, only the allotment
money is debited and the block on the balance amount is automatically released.
Represents HNI demand
The non-institutional portion includes all other investors other than the category
of retail and QIBs. Thus this portion will include HNIs investing above Rs. 2 lakhs
per application, corporates, bodies’ corporates, private limited companies, NBFCs
etc. They basically represent the demand coming from more informed investors.
IPO funding demand
The non-institutional portion is also known as the HNI portion and it has a 15%
allocation to the entire IPO. This segment normally relies on IPO funding and banks
also are willing to lend against IPO applications based on a small margin. Since
HNI investors incur a huge cost of funding, they expect attractive listing to actually
make money from the IPO.
How the categorization works in case of fixed price IPOs?
Fixed price IPOs are very uncommon these days as most of the issues prefer to get
their IPO price discovered through the book building route only. There are 3 things
you need to know here -
- In a fixed price issue the categorizations are slightly different. There is a 50%
quota for applications less than Rs.1 lakh and the balance is allocated to investments
above Rs.1 lakh. Institutions and HNIs find this allocated skewed against them hence
they are not too keen on fixed price issues for this reason.
- In a fixed price issue, there some other advantages in this categorization. For
example, there is no benefit of ASBA available in fixed price issues for the retail
investors. Unlike in book built issues, the institutional investors are also required
to pay up 100% of the total application at the time of application, which makes
it uneconomical for most institutions.
- That is the principal reason, why most issuers and all the 3 categories of investors
prefer the book built route to an IPO.