Allotment Procedure in IPO

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There are different segments of Investors who invest in IPOs. The three important segments are Retail Investors, Qualified Institutional Buyers, and Non Institutional buyers. As per SEBI guidelines, there are a different set of allocation rules for different types of Book Building Issues. An issuer can issue securities to Investors in two ways: 100% book building and 75% book building (of the net offer to the public). We will see, these 3 important cases of allotment procedures below.

Case 1:

Issuer company makes an issue of 100% of the net offer to the public through 100% book building process.

Allocation:

  • Not less than 35% of the net offer to the public to Retail individual investor.
  • Not less than 15% of the net offer to the public to NonInstitutional Investors i.e. investors other than retail individual investors and qualified institutional buyers.
  • Not more than 50% of the net offer to the public to Qualified Institutional Buyer (out of which 5% to be specifically allocated to mutual funds) However 50% of net offer to the public shall be mandatory allotted to the qualified institutional buyers.

Case 2:

Issues made under Rule 19(2)(b) of Securities Contract Regulation, Rules 1957, with 60% mandatory allocation to Qualified Institutional Buyers (out of which 5% to be specifically allocated to mutual funds)

  • Allocation: The percentage allocation to retail individual investors and non-institutional investors shall be 30% and 10% respectively.

Case 3:

CAn issuer company makes an issue of 75% of the net offer to public through book building process and 25% at the price determined through book building.

Allocation:

  • In the book built portion, not less than 25% the net offer to the public to non qualified institutional buyers.
  • Not more than 50% of the net offer to the public to Qualified Institutional Buyer (out of which 5% to be specifically allocated to mutual funds)
  • The balance 25% of the net offer to the public offered at a price determined through building to retail individual investors who either not participated or have not received allocation, in the book built portion.