Anchor investors’ IPO bets hit new high in 2017

Even as Initial Public Offering (IPO) activity in India is headed for a record year, investments by anchor investors have hit historic levels in 2017.

These investors pumped in a whopping ₹15,846.81 crore in companies that got listed on bourses this year, which is almost double of the nearly ₹7,926.10 crore these marquee investors had invested in 2016.

Anchor investors are institutional investors who are offered shares in an IPO a day before the issue opens. They ‘anchor’ the IPO by subscribing to shares at a fixed price, creating a significant impact on pricing of IPOs. The concept of anchor investors in IPOs was introduced by SEBI in 2009.

The IPO by HDFC Standard Life topped the charts, raising ₹2,322 crore from 126 anchor investors, followed by the listing by SBI Life Insurance, which received ₹2,226 crore from 69 investors.

IRB InVIT (₹2,094.50 crore from 28 investors), Bharat-22 Exchange Traded Fund (₹2,000 crore from 44 investors) and ICICI Lombard (₹1,624 crore from 64 investors) were other IPOs that attracted investors, according to data collated by BusinessLine .

“This year has been the biggest for IPOs in the last five years, and anchor investors were riding that wave. Most IPOs this year were fully priced ones, paving exit routes for promoters or private equity players rather than previous years when the proceeds were used for business expansion purposes,” said Alex K Babu, Managing Director at wealth management company Hedge Group.

“This year, the major investors were domestic mutual funds and insurance firms,” he added.

While pre-IPO investors are generally private equity firms, anchor investors — who come in a day before the IPO opens — are mainly foreign institutional investors, mutual funds and domestic institutional investors.

The global investors this year included Morgan Stanley Mauritius Co, Goldman Sachs (Singapore), DB International Asia, National Westminster Bank, Abu Dhabi Investment Authority and First State Investments (Hong Kong) while domestic institutions were SBI Life Insurance, HDFC, Axis MF, IDFC, Franklin Templeton MF, Birla Sun Life Trustee Co and L&T Mutual Fund Trustee among others.

“This is riding on the capital markets, which have made a comeback after many years. Further, there is also a rise in subscription in the pre-IPO market, which also led to the rise in investments,” said Mahesh Singhi, MD at investment banking firm Singhi Advisors.

“Anchor is a smart way of building up a large position and showing commitment to the company, without having to pay an expensive number for it. It’s always difficult to build that position through the open market,” Manisha Girotra, CEO at Moelis India said.

IPO activity in India is headed for a record year and would exceed the target of $5 billion in proceeds this year, according to an earlier EY report.