IPO nightmares for anchor investors!

The bigger they get, the harder they fall. This phrase is apt for the country’s largest-ever initial public offering (IPO) from One97 Communications, the parent company of Paytm, a digital payment solution provider. The ₹18,300-crore issue ($2.47 billion) is off 53% from its issue price of ₹2,150, and is currently trading at ₹997. In fact, the stock has been on the decline ever since it listed at ₹1,950, a discount of 9.3% to its offer price.

The slide, according to market sources, has also been accentuated by the selloff by anchor investors, including the likes of Blackrock, Canada Pension Plan Investment Board, Singapore’s GIC and domestic fund houses. Paytm had allotted shares worth ₹8,235 crore to the anchor investors ahead of its IPO, thereby securing 45% of its IPO book. While Blackrock reportedly invested ₹1,045 crore, CPPIB had put in ₹938 crore and GIC ₹533 crore. But the story has turned nightmarish for institutional investors ever since the lock-in expired on December 15, 2021.

In fact, Paytm leads the pack of IPOs in CY21 where prices have tanked after the lock-in expiry period ended, according to data from Prime Database. The losers include One97 Communications, Fino Payments Bank, Kalyan Jewellers, SJS Enterprises, Suryoday Small Finance Bank, Windlas Biotech, Craftsman Automation, Aditya Birla Sun Life AMC, Cartrade Tech, Krsnaa Diagnostics, Easy Trip Planners, Glenmark Life Sciences, Nuvoco Vistas, Aptus Value Housing, Tarsons Products, Indian Railway Finance Corp, Chemplast Sanmar and Heranba Industries. Losses range between 1% and 35%.

An anchor investor is defined as a qualified institutional buyer (QIB) who makes a bid under an IPO for a minimum ₹10 crore. Up to 30% of an issue can be allotted to anchor investors. Of the allocation, one-third is reserved for domestic mutual funds. These preferred sets of investors get shares a day before the issue opens for the public. They cannot sell shares for 30 days after the allotment, which the Securities and Exchange Board of India [SEBI] has now proposed to increase to 90 days. The new rule will be applicable for at least 50% of the shares allotted to anchor investors.

Thirty three IPOs saw anchor investors gain between 1% and 436% in 2021. Top four issues that gained between 111% and 436% include Ami Organics, Sigachi Industries, Latent View Analytics, and Paras Defence & Space Technologies. Though no official data is available on the quantum of selling by anchor investors, a reasonable guess can be made based on the price action on the following day of the expiry of the lock-in period. The top two issues, Paras Defence and Latent View, for instance, came off 5% and 10%, respectively.