Adlabs' ride proves costly for anchor investors

Five financial institutions apply for shares at Rs 221 apiece; issue price fixed at Rs 180

The five anchor investors in theme park operator Adlabs Entertainment’s initial public offering (IPO) were caught on the wrong foot, as they subscribed to the company’s shares at 20 per cent premium to the issue price.

Anchor investors, or cornerstone investors, are financial institutions which apply in an IPO ahead of its opening. As these investors are the initial participants, they provide certain degree of confidence to other investors to participate in the IPO.

Daiwa India, HDFC Infrastructure Fund, Axis Mutual Fund, L&T Mutual Fund and IL&FS were the anchor investors in the Adlabs IPO. These investors were allotted shares at Rs 221 apiece, 22 per cent more than the issue price discovered through the book building process. The allotment to anchor investors had happened at the lower end of the prevailing price band of Rs 221-230 a share.

FAIL TO AMUSE

• HDFC MF, Axis Mutual Fund, L&T Mutual Fund among anchor investors
• The Adlabs IPO, closed on March 17, was marginally oversubscribed
• The company raised Rs 350 crore from the IPO, less than the earlier proposed issue size of Rs 440 crore
• It raised about Rs 60 crore from anchor investors by allotting them a total of 2.72 million shares

However, as the Adlabs IPO had failed to garner full subscription on its earlier scheduled close, the company was forced to lower the price band to Rs 180-215 a share.

In an advertisement on Wednesday, the firm said it had fixed the issue price at Rs 180 a share and the issue price for anchor investors would remain Rs 221 a share.

Investment bankers said the allotment to anchor investors had to be made at a higher price, as Securities and Exchange Board of India rules don’t permit any revision in price once an allotment is made to anchor investors.

“Anchor investors are given allotment on a discretionary basis. Therefore, the book building price doesn’t apply to them. If the IPO is good, it usually works in their favour,” said Arun Kejriwal, chief executive officer, Kris Research.

The Adlabs IPO, which closed on March 17, was marginally oversubscribed. The company raised Rs 350 crore from the IPO, less than the earlier proposed issue size of Rs 440 crore.

“Anchor investing has its pros and cons. In an issue like Inox Wind, where the institutional category was subscribed 36 times; these investors have the advantage of getting guaranteed allotment, while the bets could go wrong sometimes as happened in Adlabs,” said an investment banker, who did not want to be named.

Adlabs raised about Rs 60 crore by anchor investors by allotting them a total of 2.72 million shares. These investors have a lock-in of 30 days from the date of allotment.