SEBI considering institutional investor-only IPOs to shield small investors from presumably risky issues
Published On: Thursday, May 27, 2021 | By: Team KnowMyStock
SEBI is considering the concept of institutional investor-only initial public offerings (IPOs) to shield small investors from presumably risky issues by new-age technology and e-commerce firms. Regulatory and investment banking sources said the regulator is deliberating whether more steps are required to safeguard investors before it allows loss-making companies, such as food delivery company Zomato, to tap the public market. Banning direct retail participation and mandatory “safety net” are some of the concepts being discussed, according to the sources. Domestic IPOs, typically, have two broad equal quotas for institutional and non-institutional investors. The non-institutional portion is further split 70:30 between retail (those investing up to Rs 2 lakh) and high net-worth individuals (those investing more than Rs 2 lakh).
In 2012, Sebi had lowered the retail quota from 35 per cent to just 10 per cent of the overall IPO size in the case of companies that didn’t have a profitability track record.
An institutional investor-only IPO would mean small investors would either have to opt for indirect exposure through the mutual fund (MF) route or invest in the HNI quota where the minimum ticket size would go up.
Investment bankers’ lobby group Association of Investment Bankers of India (AIBI) in the past had made a representation to Sebi to allow institutional investor-only IPOs — a concept prevalent in developed markets, such as the US. The regulator in the past had been averse to the idea, fearing a backlash from the public.
In today’s day and age, the average retail investor has proven to be informed and progressive and has portrayed a high-risk appetite. In light of the same, the proposal may not prove to be in sync with investment demands in the current economy,” according to experts.
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