IPO Anchor Book Allocation: Are Mutual Funds Short-Changing Unitholders?

As part of the anchor investment norm, any initial public offering or IPO bound company can allocate up to 60% of the Qualified Institutional Bidder to anchor investors on a discretionary basis. One-third of the anchor investor portion is reserved for domestic mutual funds. In addition, 5% of net QIB portion (40% of the QIB portion) is reserved for mutual funds on a proportionate basis.

This gives the domestic mutual funds flushed with retail money enough heft to dictate the pricing and demand fair valuations if companies want their active participation.

This is also beneficial to the investors of these mutual fund schemes. Since allotment to mutual fund schemes during anchor is discretionary, those who managed to get a substantial portion of the anchor will stand to gain post listing, especially if the stock rises significantly. It also means, having a sizable portion of the investment in the IPO company provides the scheme and the investor higher return.

Companies are required to disclose the list of the anchor investors and in the mutual fund category the list of schemes that are allocated shares as part of the anchor investor. It has been seen from the disclosure that schemes that have been allocated shares in anchor process are not the schemes that held the shares on the listing day. From available disclosures, two such instances are interesting – Ola Electric and Premier Energies.

In the case of Ola Electric, ten mutual funds applied through thirty-one schemes during the anchor round. The largest allocation was made to SBI Mutual Fund – via four schemes - SBI Contra Fund, SBI Flexicap Fund, SBI Automotive Opportunities Fund, and SBI Resurgent India Opportunities Scheme. The four schemes were allocated 3.68 crore shares.

At the time of listing, the company disclosed, as part of the pre-listing shareholding to the stock exchange, that SBI Magnum Midcap Fund held 7.88 crore shares. No other schemes were named.

SBI MF in a statement said that this is a disclosure anomaly, where companies disclose the name of only one scheme against the aggregate holding adding that the scheme name also seems to be randomly selected while making disclosure, which in this case seems to be SBI Magnum Midcap Fund.  

Regulations stipulate that schemes within the same mutual fund house can not transfer shares that are listed on the exchanges. However, currently, no regulations govern the transfer of unlisted shares.

To be clear three out of four schemes disclosed holdings of the Ola shares in their August-end portfolio disclosure, the fourth scheme is an offshore fund and not required to disclose the month-end holdings to the public.

At the time of anchor book, the SBI MF schemes invested Rs 257.8 crore in Ola while at the time of listing, the value of investment in SBI Magnum Midcap was Rs 552.1 crore i.e. SBI MF funded nearly 9% of the Ola Electric IPO. To be clear at the month end disclosures showed SBI MF schemes holding anchor allocated shares in its portfolio.

Ola shares more than doubled post listing, and unit holder of SBI Magnum Midcap would have reaped returns with this listing.

Another case is that in Premier Energies. Quant Mutual Fund through its Quant Large Cap Fund was allocated 485,595 shares. But as per August end disclosures, the shares were not part of the large cap scheme disclosure. Premier Energies was found in the Quant Multi-Asset Fund – accounting for 3.67% of the asset of the scheme ahead of the listing. The scheme saw its NAV jump by 3.2% on the day Premier Energies listed on the stock exchanges.

This raises an important issue – First, there needs to be more disclosures on how MF schemes are investing in IPOs, why there is transfer of shares between schemes before listing. And whether it is akin to short-changing the unitholders.

While mutual funds have been playing a balancing act in IPOs especially after large ticket HNI investments in IPOs has reduced thereby keeping the valuation of the IPOs grounded.

Mutual Funds have invested nearly Rs 35,000 crore or over $4 billion in IPOs alone in the current calendar year itself.

To be clear Mutuals Funds with more than Rs 1 lakh crore AUM have been commanding and determining IPO pricing off late. This has ensured fair pricing in large issues, thereby ensuring oversubscription in IPOs and post listing demand for the shares.