Initial Public Offerings (IPOs) usually get to
witness good participation from retail investors. The allocation of shares to
investor categories is reserved in every IPO. These categories are - qualified
institutional buyers, non-institutional investors and retail investors. Most of
the times, the quota of shares which is reserved for the retail investors get
over-subscribed. Over-subscription happens when the number of applicants exceed
the number of shares which are being offered. So, when an issue is over-subscribed,
the applicants get fewer shares than what they have applied for. In case there
is no over-subscription, the investors get full allotment of shares.
Process of Allotment when an issue is over-subscribed:
IPO Allotment to Qualified Institutional Buyers
In case of QIBs, the authority to allot shares is at
the discretion of the merchant banker. Shares are allotted proportionately to
the applicants. So, if the shares are oversubscribed by 4 times, then an
application of 10,00,000 shares will receive only 2,50,000 shares.
IPO Allotment to Retail Individual Investors
As far
as the retail individual investors (RIIs) are concerned, the process of
allocation of shares is different. The maximum amount which retail investors
can apply per IPO is Rs. 2 lakh. In order to determine the total demand for
shares in the retail investor category, all the applications are grouped
together and the total number of applications are calculated. If the number of
applications are more than the number of shares offered for retail investors,
the maximum RIIs who are eligible for the allotment of the minium bid lot are
determined.
The total number of equity shares available for
allotment to RIIs is divided by the minimum bid lot. This gives the maximum
number of RIIs who can be allotted the shares.
For
example - If shares worth Rs. 20 lakh need to be allotted to the retail segment
and the minimum lot size is Rs. 10,000, only a maximum of 200 applicants will
be allotted the shares with the minimum lot of Rs. 10,000.
If the number of RIIs exceed the maximum RII
allottees, the RIIs (in that category) who will be eligible for the minimum bid
lot will be determined on the basis of draw of lots. This is a computerised
process and hence there is no room for partiality.
High Net-worth Individuals
Usually,
HNIs invest a large amount of money in IPOs. Financial institutions provide
funding to HNIs in order to invest in IPOs. It is not necessary that a HNI will
be allotted the exact number of shares that he has applied for. If there is an
over-subscription, the HNIs may be allotted less shares than what they must
have applied for. For example : A particular HNI client has applied for 10 lakh
shares and the HNI quota is over-subscribed by 150 times. The total shares that
will be allotted to him will be 6666. This number arrives by dividing the total
number of shares applied for by the number of times that it has been
over-subscribed.
Source: 5paisa
Source: 5paisa
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