Tag: IPO

What role do anchor investors play in an IPO

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Two colleagues sharing a cab ride to office have money conversations.

Aruna: Markets are doing well. I wish I could make some extra money from it.

Sarika: Yes, same here. IPOs are quite the money-spinners today I hear.

Aruna: Yeah, more than half a dozen IPOs in August alone. My broker says to look at anchor investor book before applying.

Sarika: Who are anchor investors? Promoters?

Aruna: No. Anchor investors are institutional investors who are offered shares a day before the IPO opens.

Sarika: If some are buying shares ahead of IPO, are they not cutting our chances?

Aruna: Haha. Actually, anchor investments are a useful guide to other investors. They indicate whether there is demand for IPO offered.

Sarika: Do anchor investors get any discount?

Aruna: No. They are supposed to ‘anchor’ the issue by agreeing to subscribe to shares at a fixed price. Anchor investors can bid for shares at any price within the IPO price band.

Sarika: Then, how is this important? To me it seems just another share-sale!

Aruna: In a bull market, everything seems simple. But actually anchor investors are quite important for small investors. Unlike brokerages who simply put out IPO reports, anchor investors have skin in the game. Typically, they are mutual funds, insurance companies and foreign funds. They would have done better research.

Sarika: So, if the public issue has any problem, will the anchor investors give it a tepid response?

Aruna: Yes, Sari. There have been instances of some IPOs failing to mop up money from anchor investors, or anchor investors bidding at the lower end of the IPO price band.

Sarika: Oh, there is some method to the madness then! I was thinking they are like IPO brand ambassadors.

Aruna: Obviously there is a lot of at stake. Its real money that anchor investors put in and they can’t sell their shares for at least 30 days after the allotment. So, they have to be doubly sure.

Sarika: Where do I get anchor investor information?

Aruna: Anchor investor details are published in BSE Notices and NSE Circulars a day before the IPO opens for the public. The communique will mention shares allotted to each anchor investor, percentage of anchor investor portion allotted, value of shares allotted and so on.

Sarika: Interesting. In comparison to all the grey market premium (GMP) talk on upcoming IPOs, I suppose the anchor investor activity is a far better signal.

Aruna: Definitely. And we have reached office. Time to drop anchor here!

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South Korea’s Kakao Bank shares soar in market debut, BFSI News, ET BFSI

Banking & Finance

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SEOUL, – South Korea‘s Kakao Bank Corp jumped 38% above its initial public offering (IPO) price on its market debut, amid growth expectations for the digital bank’s planned mobile mortgage business and other offerings.

The listing is the country’s biggest since game company Netmarble’s IPO raised 2.7 trillion won in 2017, continuing a bumper year for South Korean stock market floats, despite some valuations being slashed in recent offerings.

The digital bank began trading on Friday at 53,700 won per share compared to its IPO price of 39,000 won, then soared shortly after to as much as 74% above the IPO price. This compared with a 0.1% rise of the KOSPI benchmark index.

Its largest shareholder is Kakao Corp, operator of South Korea’s dominant chat app, with a 27.3% stake.

Kakao Bank, South Korea’s first digital bank to go public, became profitable in 2019 after less than two years in operation and has 13.35 million monthly active users (MAUs), it said last month.

The opening price valued Kakao Bank at 25.5 trillion won, which made it the 16th largest stock on the KOSPI, based on Thursday’s closing valuations. In morning trading on Friday, it climbed to the 11th largest stock on the KOSPI, excluding preferred shares.

Analysts said its high valuation, which overtook market capitalisations of established banking groups such as KB Financial Group and Shinhan Financial Group as of Friday, could not be explained by traditional bank valuation measures.

“Kakao Bank’s stock price-to-earnings ratio based on the IPO price is a multiple of 56, while that of existing banking shares is around a multiple of five. It’s got the valuation of a different industry,” said Kim Eun-gab, analyst at IBK Investment & Securities. (Reporting by Joyce Lee, Jihoon Lee and Heekyong Yang; Editing by Christopher Cushing and Sonali Paul)



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Post-IPO, Nykaa founder Falguni Nayar will remain in the saddle, BFSI News, ET BFSI

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Omnichannel beauty retailer Nykaa will not only be the first woman-led Indian unicorn to launch an Initial Public Offering (IPO), but Falguni Nayar, its founder and CEO, is also expected to have strong control over the company compared to founders of other startups such as Paytm, PolicyBazaar, Zomato, Mobikwik and CarTrade.

Including Nykaa, six Indian startups have filed their draft prospectus with markets regulator, the Securities and Exchange Board of India (Sebi). Food delivery app Zomato has already made a stellar stock market debut.

Falguni, a banker-turned-entrepreneur, will have – as a promoter of the company – the right to nominate up to “50% of the number of directors on the board as well as nominate at least one such nominee director as member on each statutory or other committee constituted by the board…,” according to the IPO draft papers.

The option of exercising such rights comes at a time when most startup entrepreneurs are often left with less than 10% stake in their ventures by the time they list publicly.

This will be valid as long as Nykaa’s promoters hold more than 25% in the company.

As long as Falguni Nayar, husband Sanjay Nayar – the chairman of private equity major KKR India, the Nayar Family Trust and Sanjay Nayar Family Trust continue to be classified as promoters, they can nominate up to one-third of the board of directors as well as nominate at least one such nominee director as a member on a committee constituted by the board.

Falguni, Sanjay and their children own over 53% stake in Nykaa parent FSN E-commerce Ventures.

Nayar, a source told ET, will retain majority control even after the IPO.

The company will continue to be an inventory-led ecommerce platform as well. Foreign-owned ecommerce platforms are not allowed to have inventory models in the country and have to operate as a marketplace, like Walmart-owned Flipkart and Amazon India.

Further, Nykaa’s promoters will have the right of first refusal when a shareholder with less than 3% stake sells shares.

These rights are an outcome of the majority shareholding Nayar and her family hold as promoters.

“For a majority stakeholder, these broad rights can be accorded as per the laws. However, she is the only founder among the top-tier founders to have such a stake in the firm going into the IPO,” a senior industry executive who has worked with startups on IPO regulations said.

“In addition to the above, Sanjay Nayar and Falguni Nayar, as long as each of them is a director, is not liable to retire by rotation for as long as their total number does not exceed one-third of the total number of directors, excluding independent directors, or such other limit as may be permitted under applicable law,” the draft prospectus added.

Revival in sales
Meanwhile, Nykaa has made a full sales recovery to pre-Covid-19 second wave levels at the end of last month, a person aware of the matter said.

The overall impact on monthly sales was relatively less during the second wave compared to the first.

Last year, Nayar had told ET that being an omni-channel retailer helped it during the Covid-19 outbreak even as online sales recovered faster. She told ET that 85%-90% of its customers were registered in Nykaa database and that it was able to cater to them through hyperlocal, and in some cases by taking orders over the phone as well.

“By the end of last month, sales were back to pre-second wave levels. Overall, the expectation is that this year would be another good year for growth,” the person said.

Nykaa sells several third-party beauty and personal care brands but is also building its own set of private labels across categories.

Its fashion business is now about 20% of overall sales, sources aware of the matter said.

For now, Nykaa’s in-house labels are relatively a smaller vertical.

“Nykaa is seeing recovery across the board but there is a sharp rebound in tier 2 and tier 3 cities. Non-metros seem to be less impacted in terms of consumption for Nykaa users,” this person added.

In the DRHP, Nykaa said sales from tier 2 and tier 3 cities contributed 64% in FY21 compared to 59% in FY20.

It has also cited current draft ecommerce proposals as a risk-factor as the proposals could impact its operations.

Nykaa clocked total revenue of Rs 2,452.6 crore in FY21 compared to Rs 1,777.8 crore in FY20, a growth of 38%.

Its net profit stood at Rs 61.96 crore in FY21 compared to a net loss of Rs 16.34 crore in FY20.

Its gross merchandise value jumped by over 50% to almost Rs 4,046 crore in FY21.



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Fino Payments Bank files for Rs 1300 crore IPO, BFSI News, ET BFSI

Banking & Finance

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Four years after starting operations Fino Payments Bank will soon launch a Rs 1300 crore initial public offering which includes a Rs 300 crore OFS component. The Blackstone, ICICI Group and BPCL backed Fino Payments Bank said it has filed the draft documents with SEBI for an IPO.

Investment bankers Axis Capital, CLSA India, ICICI Securities and Nomura Financial Advisory Services are the book running lead managers to the IPO.

The fintech bank turned profitable in the fourth quarter of FY20 and has consistently enhanced its profitability since. “This makes FPBL the first profitable fintech to file for an IPO,” the payments bank said in a statement.

Fino serves the emerging India market with its digital based financial services. Over the last few years, the payments bank has witnessed a steep surge in transaction volumes on the back of digitization and proliferation of its banking points.

As stated in the DRHP, at the end of fiscal year March 2021 the payment bank’s platform has facilitated more than 434 million transactions having a gross transaction value of Rs 1.32 lakh crores. It has the largest network of micro ATMs as of March 2021 with a market share of 55%, a robust merchant network of 6.4 lakhs and 25.7 lakh bank accounts.

Its revenue for FY21 stood at Rs 791 crores that grew at a CAGR of 29% in last three years. The bank registered a profit of Rs 20.5 crores in FY21 with an annual average ROE of 15%, the DRHP states.



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Why IPOs don’t make you rich

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With recent Initial Public Offers (IPOs) delivering blockbuster returns, are you beating yourself up for not applying? On the face of it, the absolute return of 80 per cent on the Zomato stock or 109 per cent on the Tatva Chintan Pharma stock within a few days of the IPO may appear a huge missed opportunity.

But if you’ve been regretting this, you can rest easy. Retail investors in India have a rather low probability of bagging allotments in fancied IPOs. The more heavily subscribed an IPO, the less your chances of winning the allotment lottery. More important, winning the allotment lottery doesn’t mean much. Retail investors who do get IPO allotments usually get such low quantities of shares that it hardly makes a difference to their wealth – even if prices were to double on listing.

Allotment lottery

To know why, you need to know SEBI’s rules on the allotment process for retail investors in IPOs. Book-built IPOs in India are required by regulations to reserve quotas for QIBs (qualified institutional buyers), Non-Institutional Investors (NIIs) and retail investors. Individual investors placing bids of upto ₹2 lakh are treated as retail and those with bids above ₹2 lakh are classified as NIIs.

Investors who bid in IPOs are required to put in applications for at least one lot of shares. Allotments too are made based on the minimum lot size, which varies across issuers. In the Zomato IPO, one lot was 195 shares, in Tatva Chintan Pharma it was 13 shares and in GR Infraprojects it was 17 shares.

Until 2012, the rules required companies to allot shares to all bidders in a book-built IPO on a proportionate basis. But in 2012, to democratise allotment for retail investors, SEBI decreed that all retail bidders should be allotted at least one lot, irrespective of their application size.

When IPOs are under-subscribed or feature a small retail over-subscription, issuers are able to allot one lot to all retail bidders. But in heavily over-subscribed IPOs, issuers find that there are not enough shares to allot even one lot to all retail applicants. In such cases, they choose retail investors who will get one lot through a lottery system. When an IPO is highly fancied, retail investors need to win this draw of lots to bag any allotment. Even if they get chosen, they can hope to receive only one lot of shares, irrespective of their application size.

Modest gains

How this works is better understood by taking live examples of the recent IPOs. The Zomato IPO for instance, had reserved 12.27 crore shares for retail investors but received 27 lakh valid retail applications for 83.04 crore shares. This made it impossible for it to allot one lot to all retail investors and allotments were decided based on a lottery.

The basis of allotment document shows that retail bidders were allotted shares in the ratio of 116:469 for smaller application sizes and 23:93 for larger ones. That is, in the lottery only one in every four retail bidders got allotment. In line with the rule, all these winning bidders, whether they bid for just one lot (195 shares) or the maximum of 13 lots (2535 shares) received identical allotments of 195 shares.

In effect, whether you put in an application for ₹14,820 (195*₹76) or ₹1.92 lakh (2535*₹76), you received Zomato shares worth just ₹14,820 (if you were lucky). Therefore, the maximum gain that any retail investor could have pocketed on the Zomato IPO till date is ₹11,310. While this may seem like a nice round sum to make in a weeks’ time, it will not make a significant difference to one’s net worth.

The retail allotment pattern in Tatva Chintan Pharma, an even more heavily over-subscribed IPO (retail bids for 35 times) drives home the point more forcefully. Given that the retail quota here saw a mad scramble, only 4 in every 100 retail bidders were allotted shares (allotment ratios were at 16:365 and 5:114). Irrespective of whether a retail investor put in an application for ₹14,079 (one lot) or ₹1.97 lakh (14 lots), he bagged just 13 shares. Despite the stock more than doubling post listing, at the current price of ₹2270, the maximum gain that any retail investor could have made is ₹15,431.

The NII gambit

If ‘democratic’ allotments in the retail quotas of IPOs prevents you from making big gains, can you beat the system by bidding more than ₹2 lakh in the NII category? This does improve your chances of allotment, but does not guarantee a meaningful number of shares.

Given that NII portions of fancied IPOs also get heavily over-subscribed, investors who put in lower application sizes within NIIs again have to rely on a draw of lots. To bag assured NII allotment, your application size has to be really large.

For instance, to bag assured allotment in the Zomato IPO, the minimum NII bid you had to place was for 7990 shares or ₹6.07 lakh. But even these NIIs received allotment of just 233 shares. To get a meaningful allotment of Zomato shares worth ₹1 lakh, you needed to put in an application of over ₹40 lakh!

This IPO math in fact drives home an important lesson on wealth creation from equities. To make meaningful money, you don’t just need your stock to deliver blockbuster returns, you also need to own a meaningful position in it, in your portfolio. This is indeed why many seasoned investors prefer to skip the IPO allotment scramble and accumulate IPO companies, if they prove good businesses, well after listing.

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Paytm files DRHP for IPO

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One97 Communications, the parent of Paytm, has filed a draft red herring prospectus with SEBI for its initial public offering. The size of the IPO is Rs 16,600 crore.

The issue comprises a fresh issue of equity shares amounting to Rs 8,300 crore and an offer for sale by existing shareholders of Rs 8,300 crore.

The company also retains the option, in discussion with BRLMs, to undertake a pre-IPO placement of Rs 2,000 crore.

If the pre-IPO placement is completed, the fresh issue size will be reduced to that extent.

As part of the OFS, existing shareholders, including Paytm founder and CEO Vijay Shekhar Sharma, Ant Financial, Alibaba group, Elevation Capital, Saif Partners and BH International Holdings will sell their shares.

The DRHP does not disclose the share price or the stake to be diluted by any of the shareholders.

Shareholders of One97 Communications had cleared the proposal for the IPO on July 12.

Paytm’s revenue from operations was Rs 2,800 crore from 11.4 crore annual transacting users. However, it continued to be loss-making.

Its losses came down by 42.2 per cent to Rs 1,701 crore in 2020-21, from Rs 2,942 crore in 2019-20. Losses amounted to Rs 4,230 crore in 2018-19.

Marketing expenses nearly halved to Rs 532.5 crore in 2020-21 from Rs 1,397.1 crore in 2019-20.

Lead managers appointed to the issue are Morgan Stanley India, Goldman Sachs (India) Securities, ICICI Securities, Axis Capital, JP Morgan India , Citigroup Global Markets India and HDFC Bank.

The IPO is expected to be launched towards the end of November.

 

 

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Over $10 billion of IPO fund-raise expected this fiscal, says Kotak honcho V Jayasankar

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It’s raining IPOs in the market and pipeline for the remainder of the year is only robust. By all counts, this fiscal should see IPO fund-raise of at least $10 billion (without including mega LIC IPO) if the current trend is anything to go by, says V Jayasankar, Senior Executive Director and Head-ECM, Kotak Mahindra Capital Company (KMCC). He would know better with KMCC having managed the top three (₹10,200 crore) of the total six IPOs (₹12,423 crore) that hit market in April-June 2021. July itself is going to see IPOs worth ₹24,000 crore. Edited excerpts:

What explains this IPO rush? Is there a good pipeline and will this momentum continue?

Last fiscal was a record year for Equity Capital Market (ECM) business. Overall, ₹2.45-lakh crore was raised and about ₹25,000-30,000 crore was initial public offering (IPO) business in the country. IPO was about 15 per cent of ECM activity which was very robust.

I expect this year to be a record one for IPO market and my estimate is that in excess of $10 billion (without including the mega LIC IPO) will be raised. Even if the overall ECM activity remains similar to last year, there would be better proportion of IPOs in the equity raise.

So what is creating this shift?

There are five sectoral themes playing out in the market though the investor appetite stretched beyond them. These are the new age or consumer tech start-ups, financial services, speciality chemicals, consumer and healthcare sectors. The Indian start-up system has matured and become very robust. We see good number of listings in the coming years.

Can you elaborate on the other four trends?

We expect to see large number of well-managed companies in the financial services space to tap the market for listing across the spectrum of lending, insurance and others. A number of speciality chemical companies will continue going public as they have the scale and become more export-oriented. Also, benefiting from China plus one strategy. Similarly, there are numerous consumer and healthcare companies that we expect to go public as the addressable market has been growing.

Do you think Internet-based tech companies can garner better valuation by listing in overseas market like the US?

Indian equity markets have matured over the years and have depth of institutional investors’ participation. Investor universe is similar for well-run and well-managed tech companies, whether you list in India or abroad. You have the added advantage of Indian MFs and insurance companies participating in India listing.

The valuation peers, benchmark and methodology are similar irrespective of listing destination. Often we see institutional investors pay better value for Indian companies factoring in higher growth prospects that India may provide. You are likely to see several Indian digital and new age companies list here in the coming years reflecting the strong appetite.

Importantly, consumer brands benefit from retail participation. A successful listing can enhance the power and visibility of a brand.

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Paytm Money offers a new “pre-open IPO applications” feature in its platform

Banking & Finance

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Paytm Money, a digital brokerage platform, has announced a new feature that allows users to apply for an IPO before its opening in the markets. Paytm Money is the first digital broker in India to offer this functionality, and expects it to significantly increase the participation of retail users in IPOs.

Zomato is the first IPO launched with this feature on Paytm Money, and thousands have already used it to place orders over the last two days.

Paytm Money opens technology development centre in Pune

A user can place an IPO order 24×7 on days when the “pre-open IPO application” feature is enabled. The order is recorded on Paytm Money’s system, and sent to the exchange for processing whenever the IPO opens. The user is continually notified of her application status, to ensure a seamless experience.

Varun Sridhar, CEO of Paytm Money, said in a statement: “Interest in IPOs has surged over the last couple of months, and we have seen cases where users have missed out from applying because of issues like tight schedules during market hours, and demand-led processing delays in the markets. We wanted to make the lives of our users easier and ensure that they don’t miss out on good opportunities.”

A conventional IPO application process is designed around timings and is seen as restrictive

, as users are able to apply only during select market hours over a window of three days. A large proportion of the investing community does not trade actively, and is likely to miss out on some of these IPOs. This is particularly true of millennials and young investors. The pre-IPO application feature is meant for such investors.

Paytm launches ‘Wealth Community’ for young investors

There is also the issue of congestion in servers/networks during popular IPOs, due to high demand during a short time span. As the feature gains traction, it might be possible to spread out the pre-open ipo applications evenly during market hours, reducing the load on exchanges and payment gateways, and ensuring a better experience for market participants, a company statement added.

Paytm Money has also launched a few other advanced features to offer a comprehensive IPO application experience to its users, who can now complete IPO applications with a single click, apply via the shareholder category, and track live IPO subscription numbers.

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₹12,000-crore IPO plan: Paytm EGM on July 12

Banking & Finance

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One97 Communications, which is the parent company of Paytm, has called for an extraordinary general meeting on July 12 ahead of its planned initial public offering.

The company plans to raise ₹12,000 crore through a fresh issue of shares, which will be taken up at the EGM.

Proposal to declassify CEO

A proposal to declassify Paytm founder and CEO Vijay Shekhar Sharma as the promoter will also be taken up at the EGM. Sources said this is being done to meet SEBI norms.

The meeting is also expected to discuss the issue of employee stock options as part of the IPO.

The Articles of Association of the company are also likely to be amended.

A Paytm spokesperson declined to comment on the development.

Fintech major Paytm is planning to go public by the end of the year around November or December through an IPO. It is hoping to file its draft red herring prospectus (DRHP) by July and has already lined up merchant bankers for the issue.

In-principle approval

The company, which is backed by SoftBank Group, Berkshire Hathaway Inc and Ant Financial, has already received an in-principle approval from its board of directors for the IPO.

According to the Hurun India Unicorn Index 2020, Noida-based Paytm was the highest valued Indian unicorn with a valuation of $16 billion

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Fincare SFB files DRHP for IPO of up to ₹1,330 cr

Banking & Finance

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Fincare Small Finance Bank will be making an initial public offer (IPO) aggregating up to ₹1,330 crore, comprising fresh issue aggregating up to ₹330 crore and an offer-for-sale aggregating up to ₹1,000 crore by the promoter selling shareholder.

Fincare SFB proposes to utilise the net proceeds from the fresh issue towards augmenting its Tier-1 capital base to meet its future capital requirements, according to the bank’s Draft Red Herring Prospectus (DRHP).

The bank may, in consultation with Managers (to the IPO), consider a pre-IPO Placement aggregating up to ₹200 crore, the DRHP said.

Fincare SFB’s promoter, Fincare Business Services Ltd, owns 78.59 per cent stake of the bank’s issued, subscribed and paid-up equity share capital.

Also read: Motilal Oswal PE buys minority stake in Fincare Small Finance Bank for about ₹185 crore

In terms of the RBI’s SFB Licensing Guidelines, the bank is required to list its equity shares on the stock exchanges within three years from reaching a net worth of ₹500 crore.

As per the DRHP, Fincare SFB has a network of 528 banking outlets, 219 business correspondent outlets and 108 ATMs spread across 16 States and three Union Territories, covering 192 districts and 38,809 villages as of December 31, 2020.

The bank’s network is particularly strong in south (Tamil Nadu and Karnataka) and west India (Gujarat), it added.

According to the prospectus, the bank had a gross loan portfolio and total deposits of ₹5,548 crore and ₹5,277 crore, respectively, as at December-end 2020.

Following the RBI granting Disha Microfin Ltd (DML) a licence on May 12, 2017 to carry on small finance bank business in India, its name was changed to Fincare Small Finance Bank.

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