Grey mkt premium lures institutions to raise bids for Muthoot IPO

It is not just retail investors who are getting cues from the grey market for initial public offers (IPO) of companies. A good premium in the grey market is influencing the decisions of big institutional investors, too.

Grey market premium appears to have convinced domestic institutional bidders to raise their bids for the IPO of Muthoot Finance in the 11th hour, as they scrambled to secure a meaningful allocation from the share issue, investment bankers said.

“Initially, the average bid size from institutional investors was Rs 75-100 crore. This, however, changed when grey market estimates showed shares were likely to be listed at a premium of Rs 30 on the upper end of the price bank,” said an investment banker.

Adding: “On the last day, a number of institutions raised their bids over Rs 300 crore as they feared they will not be able to corner adequate shares from the issue,” the banker said.

The price band of Muthoot Finance’s IPO was kept at Rs 160-175 per share.

India’s third-largest private sector lender, Axis Bank has put in a bid of Rs 450 crore. The State Bank of India (SBI), the country’s largest commercial bank, has also put in a bid of around Rs 350 crore.

Fund houses including SBI Mutual Fund, HDFC Mutual Fund and IDFC Mutual Fund, have also bid in excess of Rs 200 crore, investment bankers said.

“As the issue progressed and the book got subscribed by more than five times, institutional investors nearly doubled their exposure,” another banker said.

The IPO of the gold loan company opened on April 18 and closed on April 20 for qualified institutional buyers. For other investors including retail the issue was open till April 21. Shares allotted for institutional investors were over-subscribed 25.01 times.

ICICI Securities and Kotak Mahindra Capital are the book running lead managers to the issue. HDFC Bank is the co-book running lead manager.

“The price of the IPO was kept relatively attractive, which has led to this phenomenal subscription,” said Rakesh Singh, head of investment banking of HDFC Bank. He, did not offer any more details as HDFC Bank was managing this issue.

According to Muthoot Finance’s IPO prospectus, up to 50 per cent of the issue will be available for allocation to qualified institutional buyers on a proportionate basis, of which five per cent, excluding anchor investors’ portion, will be available for allocation to mutual funds.