SBI Cards IPO: New guidelines likely to restrict multiple FPI bids

A section of foreign portfolio investors (FPIs) may not be able to place multiple applications in the initial public offering (IPO) of SBI Cards and Payment Services (SBI Cards).

The offering, the fourth-largest in the domestic market, is expected to generate high interest from institutional investors, given that it is the first credit card company to go public.

The 2019 operational guidelines for FPIs allow multiple bids to be submitted in an IPO but only under the multiple investment managers (MIM) structure with the same permanent account number (PAN) and different beneficiary account numbers, client IDs, and depository participant IDs. This means that all non-MIM investors with the same PAN but different demat accounts will be treated as a single investor and will not be able to place multiple bids in an IPO. The MIM structure allows investment through different investment managers but with the same PAN.

In general, the applications of all those putting in multiple bids through a single PAN card in a single IPO get rejected, according to the current regulatory norms. However, an exception was made for mutual funds and foreign institutional investors (FIIs) under the earlier norms. 

“Bids by mutual funds, and sub-accounts of FIIs (or FIIs and its sub-accounts) submitted with the same PAN but with different beneficiary account numbers, client IDs and DP IDs may not be treated as multiple bids,” observed the Securities and Exchange Board of India’s (Sebi’s) general information document (GID) issued in 2003.

The current GID, however, permits only FPIs with MIM structures to submit multiple applications.

“Sebi should recognise that there are some valid structures other than MIMs under the current FPI regime having the same PAN but different demat accounts. These should be allowed to put in multiple applications,” said a custodian.

The new guidelines could impact umbrella funds that have a common FPI registration across sub-funds. An umbrella fund is a collective investment scheme that exists as a single legal entity, but has several distinct sub-funds which, in effect, are traded as individual investment funds.

This is common in Europe with SICAV (Société d'investissement à Capital Variable) funds, which are similar to open-end mutual funds. About 20 per cent of SICAV funds investing into India could have a common FPI registration and could get impacted, reckon experts.

The 2019 operating guidelines for FPIs also prescribe a separate registration for proprietary derivative investments and ODI activities of an FPI. So, an FPI issuing participatory notes (p-notes), or offshore derivatives instruments (ODIs), cannot invest in derivatives under the same registration and vice-versa.

The issuer of an ODI is typically a prime broker, such as Citibank, JPMorgan or BNP Paribas. These are issued to overseas investors who want to invest in the Indian stock market without registering themselves with Sebi.

Post the new guidelines, these brokers are required to create two separate investment accounts: One for their own prop money and the other for investment on behalf of clients through ODIs. Since both these accounts have the same PAN, they cannot be used for bidding separately in an IPO. The bidding will have to be done through one of the accounts, which may put some investors at a disadvantage.

“To add to the confusion, the regulator had in the recent past hinted that ODI issuers cannot invest in IPOs. There is as yet no clarity on the same,” said another person.  SBI Cards, the biggest credit card issuer in India after HDFC Bank, had an 18 per cent market share in outstanding credit cards at the end of September 2019, and a 17-18 per cent share in the number of credit card transactions/value of credit card transactions in the first half of FY20.

Share sale garners 38% subscription on Day 1

Despite the volatility in the market, the Rs 10,350-crore initial public offering (IPO) of SBI Cards and Payment Services is off to a good a start. The share sale garnered 38 per cent subscription on Monday. Bulk of the bids have come from small investors, exchange data shows. On Friday, it had allotted shares worth nearly Rs 2,800-crore to anchor investors. SBI Card’s IPO closes on Wednesday for institutional investors, and a day later for retail and wealthy investors. - BS Reporter