Make no mistake, an anchor investor, who is all set to be unleashed by SEBI into the dormant primary market to rev it up, is not an angel investor. An angel investor is a benevolent person with deep pockets and capacity to play the role of a venture capitalist. He bankrolls an unlisted company.
The anchor investor, on the other hand, is a bridge between the company and the public in the run up to an Initial Public Offer (IPO). He would be a prize catch for a company making an IPO. He would be flaunted by the company before the public whose confidence he is supposed to boost. He may be likened to a company’s brand ambassador not in the market for its product or services but in the primary market.
What the market regulator SEBI has done is to bring about improvements upon the extant book building process and its edifice — Qualified Institutional Buyers (QIBs). As it is, QIBs participate in the price discovery process called book-building but are not pinned down to fulfil their commitment, as all that they have to pay upfront is 10 per cent of what they have bid for the shares.
In the event, the company can pin them down only to the extent they have put into its coffers. From the contours of SEBI’s scheme of things, it appears that after having participated in the book-building process, the company may summon them for a final round of bidding, this time round to pin one or more of them for a more committed role of being the anchor. As it is, the quota reserved for QIBs is 50 per cent of the IPO size. An anchor investor can be allotted not more than 30 per cent of the shares reserved for QIBs, which implies that out of the overall quota of 50 per cent, the anchor’s quota cannot exceed 15 per cent.
But unlike other QIBs who have contributed only 10 per cent as margin money, an anchor has to cough up 25 per cent and follow it up with the remaining 75 per cent within two days of the closure of the public issue. His appointment as the leader of the QIBs then is a noblesse oblige, a position or honour that entails responsibility.
Carving out a king from amongst QIBs raises a fundamental issue: Why did SEBI not pin down all the participants in the book-building exercise. If irrevocable commitments were obtained from all the QIBs, the company would have something more substantial to flaunt before the public — endorsement to half of the size of its public issue as against only of 15 per cent by the anchor.
That SEBI had to resort to anointment of an anchor from amongst QIBs is a tacit admission of its failure to discipline the tribe of institutional investors. What it has done is to give up doing the impossible and instead achieve what is possible — discipline the one willing to stick his neck out on 15 per cent of the issue size instead of trying to discipline everyone although their combined strength may give greater credibility to the upcoming IPO.
It however remains to be seen whether the public would be willing to bite the smaller and less substantial bait — it might if the anchor is a reputed financial institution.
The first moot question is whether the anchor-investor can really be pinned down. What happens if he refuses to pay the balance 75 per cent after the public issue is over? Wouldn’t it have been better to collect the full amount from him upfront? Is SEBI allowing too much latitude to the anchor, the same mistake it did with reference to QIBs?
The anchor, after all, can change his mind and refuse to cough up the remaining 75 per cent. In that eventuality, would the initial 25 per cent paid by him be forfeited or it would be used to allot the requisite number of shares which of course would be just 25 per cent of his total commitment?
SEBI’s hunt for a confidence builder in the primary market is the culmination of the process set in motion by Section 64 of the Companies Act, 1956 — appointment of an issue house. A company has the liberty of using a conduit for making public issues in terms of Section 64.
The issue house has all the trappings of an anchor except that while the anchor entices public to subscribe to the public issue, the issue house unloads the shares — it had subscribed earlier — when the times are more propitious.
The issue house then could end up with a tidy profit. In other words, under the issue house arrangement, what the public pays goes into the coffers of the issue house, but under the anchor regime, what the public pays would go into the company’s coffers. Which perhaps explains why there have been few takers for the issue house dispensation.
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