PNC Infratech Limited which had tapped the capital markets with its IPO for 1,29,21,708 equity shares in a price band of Rs 355-378 was oversubscribed. The issue received support only from institutional investors and remained under subscribed in the two categories of HNI and retail which have buckets of 15% and 35% respectively. This effectively means that half the book remained undersubscribed.

The anchor book allotted was most impressive with nine anchor investors comprising of 24 entities who were allotted the entire quantity of shares for anchor investors at the top end of the price band of Rs 378. The combined HNI and retail buckets was for 64.35 lac shares and bids for 24.96 lac shares were received which means that these buckets were subscribed to the extent of just 38.79%. Why this difference or lack of interest? The answer lies in the fact that HNI’s did not participate. Why did HNI’s not participate? No grey market. Why no grey market? Funding margin asked for was very high and so on and on. The whole exercise is a vicious cycle which we will discuss in a separate article. Suffice to say that the crux of the issue or the beginning of the problem is the fact that HNI’s are allowed to subscribe to the extent of the whole book which includes anchor allotment already made and not restricted to the bucket size. Why this is allowed only SEBI knows. All problems begin and end with this matter. If the HNI is allowed to apply for no more than his bucket size, the issues involving distorted demand creation, funding by NBFC’s, grey market etc. will all be resolved. One hopes SEBI will act soon in this regard.

Coming back to PNC Infratech Limited, the saving grace was QIB’s. What went wrong for the company were primarily two things? The first was the extreme volatility in the market where the BSESENSEX gained 500 points and 400 points on the first two days of the issue being open and lost over 600 points on the third and last day of subscription. Almost the entire book is typically built on the last day. The second reason could be attributed to valuations being higher than the listed players from the peer group.

The merchant bankers have a third reason who could be right in their own way which was that listed players who formed the peer group have lost between 25 and 30% in the last month. Whether this should be accepted as a satisfactory explanation or not is a moot point.

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