THE Sebi fiat mandating institutional investors to pay 100% of the application money upfront for public issues from May 1 (against 10%), is unlikely to have a major impact on the float money that bankers to the issue receive. Also, with the market regulator looking to cut short the time frame for issues from the current 15-21 to around seven days, banks will have fewer days to use the float money.
Some of the foreign and public sector banks, that have large institutional investor accounts, will benefit marginally, say bankers. Currently, only high net worth individuals and retail investors bring in 100% of the money upfront.
Some of the main bankers to capital market issues are SBI, Citi, Kotak Mahindra Bank, HDFC Bank, ICICI Bank, HSBC and Axis Bank.
However, the perception is that with the ASBA (application supported by blocked amount) route eventully to be opened to FIIs, investors subscribing to a public issue will continue to earn interest on the application money as it remains in their accounts. This is not the case with other modes of payment. ASBA is an application for subscribing to an issue, containing an authorisation to block the application money in a bank account.
Foreign banks like Citi, HSBC and StanChart have most of the foreign institutional investors’ accounts while public sector banks have the accounts of the PSU insurance companies like LIC. The accounts of the Indian mutual funds and insurances are distributed between the private sector banks and foreign banks. “The net impact would be very marginal. The amount of float which flows in for the banks even now is insignificant. The float was larger from the retail side,” says Deepak Gupta, ED, Kotak Mahindra Bank.
Banks have to maintain 5.75% of their savings and term deposits as CRR and 25% in statutory liquidity ratio (SLR) with the RBI. “There is also a lag impact on banks to maintain the CRR and SLR. Banks sometimes have to borrow money to maintain the CRR and SLR as it had to be maintained a week after the money flows out,” Mr Gupta told ET.
However, bankers feel most institutional investors will henceforth come in at the fag end of the issue. But they are unclear as to how the new guidelines will impact anchor investors who currently have to bring in around 25% of the application money, a day ahead of the issue, with the balance amount to be paid on allotment.
“Most QIB interest will be back-ended. However, investors will henceforth indicate their real interest. This will improve the overall quality of demand,” says Debasish Purohit, director & head, ECM, BoA Merrill Lynch.
Ravi Kapoor, MD and head of South Asia-capital markets origination, Citi, also agrees that the demand will be more back-ended and investors will bid at realistic levels. He adds, “The level of over-subscription will come down. It’s not the question of float money. Sebi has tried to create a level-playing field for all investors. Further, as a next logical step, Sebi will also look to reduce the timelines for listings so that investor money is not held up.” He adds, “Anchor investors will also have to bring in upfront money. Valuations will reduce to reasonable levels and oversubscription will be moderate. Also, the percentage of people using ASBA will be high as institutional investors are more likely to use it than retail investors.”
Though ASBA is an investor-friendly move, it is yet to gain traction among small investors. Sebi introduced ASBA following complaints of non-repayment of application money or delayed refund by companies. In a significantly oversubscribed issue like the February 2008 Reliance Power issue, which received bids for over 69 times the targeted Rs 11,790 crore, bankers had an opportunity to make huge money out of float funds. However, in more recent times the response to public offerings has been more muted, giving banks lesser opportunity to play with the float.