Historically, companies launching with initial public offerings have always found it challenging to get their employees to bid for their quotas set aside in IPOs. But that has changed recently.
General Insurance Corporation (GIC Re), which recently concluded its IPO, saw the employee quota in its offer being subscribed fully. Similarly, SBI Life Insurance issue too managed to get full subscription from its staff.
Employee response was exceptional in the CDSL public issue. The portion reserved for its staff was subscribed by 146 per cent or 1.46 times. In contrast, the IPO of government-owned Housing and Urban Development Corporation got subscribed only for about 74 per cent of reserved quota.
Employees of Cochin Shipyard were also not too enthusiastic. The portion reserved for staff got subscribed by just 0.48 times. This is in contrast to the response from retail investors who showed overwhelming response to the HUDCO and Cochin Shipyard public issues.
So, how can companies ensure better employee response to their IPOs? To attract interest, SEBI in 2016 had made an important amendment in the norms for employee reservation in offers. It had increased the value of allotments to ₹5 lakh from ₹2 lakh for staff quotas in the IPO.
Further tweaks that may be considered are: The quota reserved for employees should take into account the potential number of investors among them, as in many cases the number of likely subscribers may be lower than the number of shares reserved.
Companies can also consider doing away with the minimum lot criteria for employee subscriptions so that even employees who cannot afford large bids can be accommodated, by giving full allotment to smaller bids.
Also, the subscription window for employees can be opened on the last day of the public investor quota. This will help employees who cannot arrive at a decision on their own, to take their cues from other institutional investors and high net worth individuals.
Corporates should also come forward to open a free demat account or arrange some facilities for easy opening of demat account for employees looking to bid in their IPOs.
RoadshowsLike roadshows conducted for high net worth individuals and foreign investors ahead of the IPO, companies should also make a presentation to their staff about the offer. Staff subscription could indicate the interest and commitment of the employees towards the company and also would serve to bolster investor confidence in IPOs.