The Offer for Sale of 9,45,00,053 shares by Lemon Tree Limited just about manged to get subscribed. The price band of the issue was Rs 54-56. Earlier the company had allotted 5,56,43,820 equity shares to 18 anchor investors comprising of 20 entities. The highest allocation of 1,15,84,740 equity shares was made to SBI Mutual Fund. This allocation was 20.9% of the anchor allocation.

The general issue was subscribed only by QIB’s who subscribed their portion 3.89 times. HNI and Retail remained under subscribed. The subscription was a mere 12% of the book in either case. The response was indeed very poor.

The company had just begun to make profits on a consolidated basis and the hotel sector is a long gestation sector and completely out of favour. SEBI allows companies tapping the capital market with two different dispensations under the present rules. The first under 26 (1) is for companies that have a track record of consistently making profits and here such companies have to offer 50% to QIB’s, 35% to Retail and 15% to HNI’s. Under rule 26 (2) the same is modified where the profitability criteria is waived off and the allotment is changed with QIB’s to be allotted 75%, Retail 10% and HNI’s unchanged at 15%. The issue from Lemon Tree was a fit case to be brought under 26 (2) and one wonders what benefit the merchant bankers saw in bending the rule, taking a distorted opinion and finally cutting such a sorry figure. HNI’s and Retail just did not bite the bullet.

Its time SEBI took away the power to interpret the definition of 26 (1) and (2) and made it simply a straight line. All issues which do not qualify under 26 (1) are not allowed to tap the capital markets. Considering the business, it may be allowed to tap markets under 26 (2) provided it meets the norms.

There cannot be a case where a company can fulfil both conditions and choose either or. This option should be plugged. Merchant bankers should not have the right to choose.

The details of the subscription in various buckets is given below: –