Sebi won't defer stricter norms for anchor investors

Mumbai: The board of the Securities and Exchange Board of India (Sebi) at a meeting held late last month did not approve a proposal to defer the implementation of tighter anchor investor norms for large initial public offerings (IPOs).

The matter was discussed by the board at its latest meeting on March 29 where it decided to go ahead with the regulations from April 1.

The deferment proposal was part of the agenda of the board meeting. Bankers and lawyers said the recommendation was aimed at facilitating better institutional participation in the upcoming initial share sale of Life Insurance Corporation (LIC).

"It has not yet been implemented because it was not approved by the board," said a person with direct knowledge of the matter. "It was put on hold as there are no issues above ₹10,000 crore coming up now."

The regulator had proposed to exempt all IPOs exceeding ₹10,000 crore from the stricter anchor investor norms until July 1, 2022, according to the agenda of the March 20 Sebi board meeting.

Until now, shares allotted to anchor investors in an initial public offering (IPO) were subject to a 30-day lock-in. However, from April 1, 50% of shares allotted to anchor investors would be subject to a 90-day lock-in.

"The impact of the new allocation methodology for NIIs (non-institutional investors) and lock-in provisions for anchor investors appears to be uncertain and may adversely affect their participation in the forthcoming IPOs especially those of the large issuers," as per the agenda of Sebi board meeting dated March 29.

Suggestions from I-banks
"Accordingly, it is felt that implementation of these amended provisions especially for large issuers from April 1, 2022 may not be in the best interest of the securities market at this stage," according to the agenda of Sebi board meeting. Emails sent to Sebi and LIC remained unanswered.

Sebi had received representations from investment bankers handling the upcoming LIC IPO who had made the point that markets across the world are currently volatile due to political factors and large institutions were inclined to reduce potentially risky bets, said people with direct knowledge of the matter. According to various media reports, the Centre is planning to raise around ₹60,000 crore through the IPO by selling 5-6% of its stake in LIC.

The suggestion to remove the 90-day lock-in period, if it had been adopted, could have increased subscriptions in LIC's anchor book, according to some market participants.

"This move must be seen in the context of certain large public issues imminent to be launched, which require a strong anchor book for the issue to be a success," said Arka Mookerjee, partner, J Sagar Associates. "The deferment of this rule will certainly help those IPOs especially when market conditions have become tougher."

Anchor investors are large institutions like sovereign wealth funds and domestic mutual funds. Sebi rules allow a portion of the total IPO issuance to be allotted to anchor investors. Unlike normal investors who must bid for the shares in the IPO, anchor investors get share allotment without bidding.