Lock-In Period for Anchor Investors In An IPO: Know All About It

IPO is the buzzword these days and if you also track them then before the public issue or IPO opens for public subscription at large, the company usually a day before opens the issue for anchor investors and amass funds. So, who are these anchor investors at first?

Who are anchor investors in an IPO?

Anchor investors typically are marquee institutional investors to whom shares are allotted on a confirmed basis ahead of the IPO. These are also referred to as cornerstone investors in some of the global markets.

These can also be a QIB or Qualified institutional buyer excluding relatives, family members and merchant bankers who make bids for a minimum of Rs. 10 crore.

Other IPO norms for anchor investors

This category of investors in an IPO can be allotted a maximum of 30 percent of the issue size. Say in case the issue has been planned to mop up Rs. 100 crore then shares worth up to Rs. 30 crore can be placed with Anchor investors. Further note, ⅓rd of the portion for anchor investors can be booked for domestic mutual funds.

In a case if the list of these anchor investors is good, it lends support to the soon to be listed company through an overwhelming IPO response.

Now coming to the core topic i.e. lock-in period for anchor investors after the IPO
For your know-how, all anchor investors who are allotted shares just before the IPO on a confirmed basis need to adhere to the lock-in period. This 'lock-in period' term is commonly used in the financial landscape and refers to the period or a time duration during which you are debarred from doing some transaction say as in ELSS-these equity linked savings schemes cannot be redeemed before completion of 3 years of investment.

Lock-in period of anchor investors after IPO

Similarly as anchor investors enjoy the benefit of confirmed allotment of shares ahead of the IPO, they cannot offload their holdings in the company before the lock-in period ends. Typically the lock in period is 30 days after the share allotment i.e. institutional investors cannot square off their positions in the IPO company shares before the 1-month period from share allotment date ends.

New lock-in period norms as proposed by SEBI

The market watchdog has proposed to increase the lock in period from the current 30 days time to 3 months. The new lock-in rules shall apply for at least 50 percent of the shares allotted to anchor investors.

This increase in the lock-in period will provide a confidence boost to investors adds the SEBI consultation paper on new IPO norms.

How did some recently listed companies’ reacted after the lock-in period for their anchor investors ended?

Paytm shares tumbled by as much as 13% in intra-day trade on December 15, 2021 after the lock-in period for its anchor investors ended. As per a leading business dailies report, the fall in Paytm's share price post the expiry of the lock-in has been higher than what most other companies' that floated IPOs this year saw.

GoodReturns.in