The concept of Anchor investors was introduced by Securities Exchange Board of India (SEBI) with the intention to improve the price discovery during initial public offers (IPO’s).The process was aimed at improving the investment opportunity for retail investors with the company.
Anchor investors or cornerstone investors (as they are called globally ) are marquee institutional investors like sovereign wealth funds, mutual funds and pension funds that are invited to subscribe for shares ahead of the IPO to boost the popularity of the issue and provide confidence to potential IPO investors.
Since, anchor investors belong to the Qualified Institutional Buyers (QIB’s) category they would be in a better position to gauge the fundamentals and the future prospects of the company.
An anchor investor in a public issue refers to a qualified institutional buyer making an application for a value of Rs.10 crore or more through the book-building process.
The benefit for institutional investors applying in anchor quota is that they get guaranteed allotment. Allotment to investors applying in an IPO depends on the number of times the issue gets subscribed. Anchor investors, however cannot sell their shares for a period of 30 days from the date of allotment as against IPO investors who are allowed to sell on listing day.
All IPO’s are split into sections such as retail, non-institutional, and so-on. QIB’s are one of the investor group. A company can only hold 30% of QIB allotment and provide it to anchor investors. The minimum application size for each anchor investor should be Rs.10 crore.
Anchor Allotment is done a day before an IPO opens. Roping in anchor investors gives a lot of comfort to the issuer and banker, as nearly a third of the IPO gets covered even before the opening day. A healthy anchor book also gives lot of comfort to small investors as it indicates the faith shown by institutional investors.
Anchor investors will put up with margin amount of 25% of their application and the balance within two days from the close of the issue. These Anchor investors are supposed to apply for the shares like regular investors at the price they seem best fit for it.