SEBI Proposes Changes in IPO Allocation Norms for Large Issues

The Securities and Exchange Board of India (SEBI) has released a consultation paper proposing major reforms to the allocation structure of Initial Public Offerings (IPOs), particularly for large issues exceeding ₹5,000 crore. The move aims to better align IPO allocation with investor interest and institutional appetite.

Proposed Changes in IPO Allocation Structure

• For IPOs above ₹5,000 crore, SEBI proposes:
  • Retail investor quota to be reduced from 35% to 25%.
  • Institutional quota (Qualified Institutional Buyers – QIBs) to be increased from 50% to 60%.
  • A graded approach will be applied based on IPO size.

Rationale Behind the Proposal

• SEBI noted that:
  • IPO sizes have grown, but retail participation has remained flat over the last three years.
  • In large IPOs, retail subscription levels have often been muted or underutilized, while institutional demand remains strong.

Anchor Investor Reforms

• SEBI proposes to increase the number of permissible anchor investor allottees for allocations exceeding ₹250 crore.
  • This will make participation easier for large FPIs managing multiple funds.
• Inclusion of insurance companies and pension funds in the reserved anchor investor category is suggested.

Enhanced Reservation for Long-term Institutions

• Within the anchor investor portion, the reservation for:
  • Life insurers, pension funds, and domestic mutual funds to increase from 30% to 40%.
    • One-third of this (approx. 13.3%) remains for domestic mutual funds.
    • 7% is earmarked specifically for insurance companies and pension funds.

Objective of the Reform

To align IPO structures with:

• Market demand and mutual fund flows
• Ground realities of retail application limits
• The goal of maintaining long-term investor confidence in India’s capital markets

Mint