CARE IPO, which closed on December 11th, got oversubscribed by 34.11 times. After a very long time an IPO has seen such a good response from all the categories of investors. There was a huge appetite for its shares from Qualified Institutional Investors (QIBs) and Non-Institutional Investors (NII) categories, which saw oversubscription to the tune of 43.31 times and 110.24 times respectively.
Retail investors were a little cautious but some of them got interested to apply for it. This category got oversubscribed by 6.11 times. CARE has now become the third rating agency to get listed after CRISIL and ICRA.
CARE IPO – Explaining Basis of Allotment to Retail Individual Bidders
CARE IPO had total 71,99,700 equity shares on offer in the IPO, at an issue price of Rs. 750 per share. 35% of the offer was available for allocation to the retail individual bidders in accordance with the SEBI Regulations, which makes it 25,19,895 equity shares.
As many of you must be aware, when the investors apply for a company’s shares in an IPO, there is a bid ‘lot’ system. With CARE IPO, the bid lot size was in multiples of 20 shares and the retail investors had the option to apply for a maximum of 13 lots (260 shares) and a minimum of 1 lot (20 shares). So, the minimum investment in the CARE IPO was Rs. 15,000 and Rs. 1,95,000 as the maximum.
In August this year, SEBI announced certain new measures regarding “Basis of Allotment”. Some of the important measures are:
* Every retail participant gets a minimum bid lot irrespective of his application size. This is subject to availability of shares.
* The minimum application size band in an IPO has been increased from Rs. 5,000-7,000 earlier to Rs. 10,000-15,000 now.
* Issuers are now allowed to furnish the price band five working days prior to issue opening date as against the erstwhile two working days.
So, this new system of allotment, which got used in the CARE IPO also, has left many of the retail investors disappointed, including me.
Retail investors have been allotted only 20 shares irrespective of their application size i.e. whether they applied for 20 shares or 260 shares or any number of shares in between, they got only 20 shares allotted. That too, in the ratio of 101:256 i.e. only 101 applicants got these 20 shares out of 256 applicants.
Actually, a total of 3,19,350 retail individual applicants applied for it, in varying number of bid lots i.e. between 1 to 13 bid lots and only 1,25,994 applicants got the shares allotted in the ratio of 101:256.
Allocation to Retail Individual Bidders (after technical rejection)
As you can check the Basis of Allotment in the table above, there were 2,45,680 applicants who applied for 20 shares with each of their applications. Out of these 2,45,680 applicants, 96,929 applicants have been allotted 20 shares each or total of 19,38,580 shares.
2,45,680 * 101/256 = 96,929 * 20 shares = 19,38,580
15,853 * 101/256 = 6,255 * 20 shares = 1,25,100
9,199 * 101/256 = 3,629 * 20 shares = 72,580
and so on.
If you want to check the manual of CARE allotment, you can do so from this link.
I was disappointed as out of my family members’ 4 applications, we got allotted only 20 shares. There have been many investors like me who are disappointed. But, the disappointment in the allotment is primarily due to non-awareness of the new system.
If the new system is analysed deeply, it is not that bad after all. I think the idea is to encourage and favour the small retail investors and also to discourage HNIs to take the retail category route to apply for higher number of shares.
At the same time, it creates uncertainty in the minds of the retail investors whether to apply for an IPO or not, as you never know whether you will fall in those 1,25,994 successful applicants or not.
With the new system in place, the retail investors will have to change their strategy to get maximum number of shares allotted in some popular IPOs like CARE i.e. they should now apply for minimum bid lots in popular IPOs and increase the number of applications using demat accounts of their family members.