Business & Finance

What is anchor investors?

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2010-08-11 01:04:02

An Anchor Investor is the first investor in any round, that

provides subsequent investors a degree of confidence. Until you

have the first investor, no body wants to be the first one to take

a bite. Once you have the first investors, others feel assurance

that others are willing to invest. So typically an anchor investor

will know you and have a high degree of confidence in your project.

The anchor Investor may even have invested in other projects with

you.

The concept of anchor investors came up in June this year

following a directive by SEBI. Put briefly, anchor investors are

entities which are offered, and subscribed to, shares in an IPO

before the offer opens to the public.

Anchor investors belong to the Qualified Institutional Buyers

(QIBs) category, which include mutual funds, foreign institutional

investors, banks, and venture capital funds - domestic and

international provident and pension funds.

These entities are deemed to be in a better position than

regular investors to judge the fundamentals and prospects of a

company.

Any new public offer of shares is split into sections, each of

which is allocated to an investor group such as retail ,

non-institutional and so on. QIBs form the third investor

group.

A company can carve out a maximum of 30 per cent of the QIB

section and offer it to anchor investors. In terms of money, the

minimum application size for each anchor should be Rs 10

crore.Anchor investors also have to make available a margin of 25

per cent of their application and part with the balance within two

days from the close of the issue.

An anchor investor will apply for these shares like a regular

investor, at the prices it deems is the best fit. The offer for

these investors opens - and closes - on the day before the whole

issue is open to the public.

Once the entire issue, that is, to the public as well, is over

and the issue price fixed according to the book-building process,

anchor investors have to make up the difference if their price is

lower than what has been fixed.But should their price be above the

fixed issue price, they have to forgo their cash.

As for the allocation among the anchor investors, while it is

left to the company to decide it has to make sure that, for an

issue size of up to Rs 250 crore, there are at least two investors

and for issues bigger than that there are at least five. The

details of anchor investments have to be made public before the

issue opens.

Entities that belong to the promoter group of the issuing

company or to the book running or lead managers to the issue are,

however, barred from being anchor investors. Note that anchor

investors are not allowed to sell their investments for 30 days

after listing. This could mean that there may be fewer investors

cashing in on listing gains.


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