Retail pie in book-built issues hiked

Mumbai, March 29 | Updated: Mar 30 2005, 05:30am hrs
Aiming to increase retail participation in the primary market, the Securities and Exchange Board of India (Sebi) has decided to hike the allocation for retail individual investors (RIIs) in book-built issues from the present 25% to 35%. Sebi has also hiked the investment limit for RIIs from the current Rs 50,000 to Rs 1 lakh.

Sebi issued a circular on Tuesday regarding these changes to effect amendments in its DIP guidelines. The change with respect to enhancing the allocation category for RIIs will come into force for all the IPOs for which the draft offer document is filed after April 4, 2005 and will be limited to book-built issues. However, the definition of the retail investor will change for all types of issues and RII will be defined as one who applies up to Rs 1 lakh in IPOs.

The reservation of allocation category is not required in the fixed price issue as there are hardly any institutional buyers who are interested in subscribing to the issue, sources said.

Sebi said: at present, in a book-built issue, allocation to RIIs, non-institutional investors (NIIs) and qualified institutional buyers (QIBs) is in the ratio of 25:25:50. Sebi has now decided to increase the allocation to RIIs from the existing 25% to 35% and correspondingly reduce the allocation to NIIs from 25% to 15%. In case where the allocation for QIBs is 60% mandatory, RIIs will be allotted 30% and NIIs will be given 10%.

T Ramaswamy, CEO, AMBI and member, Sebi panel on disclosures said: this decision is probably because of the tremendous growth in retail investors base. However, if the maximum limit for retail investor has been doubled, shouldnt something similar be considered for the minimum investment too, thus directing those below the limit to come through the mutual fund route

Sebi has also decided to reduce the bidding period of 10 days which is currently in force for book-built issues. This period is extendable for another three days in case of price band revision.