VRL Logistics Limited which had tapped the capital markets with its IPO for a fresh issue and an offer for sale to raise a combined Rs 476.88 crs at the upper band was subscribed a handsome 74 times. The QIB portion was subscribed 58.22 times while the HNI portion 250 times. The cost of finance depending upon the rate of interest paid which varies from 6.75% to 8% for seven days would cost the leveraged HNI anywhere between Rs 68 to Rs 78 as interest cost. Reducing the band further we could say that the interest cost would be Rs 72-75 making any listing below Rs 285-290 as non-remunerative for the HNI. This makes the retail investor that much more happier because if he is the lucky investor of 2 out of nine who would receive shares would make a cool Rs 75 as net profit per share or Rs 4,875 per application., Incidentally the retail portion was subscribed 7.92 times in number of shares and considering the number of applications received was about 4.46 times. The issue received 5.56 lac applications.

From the above subscription it is apparent that the driving force behind the success of the issue is the leveraged HNI. What distorted the demand is that he is allowed to make an application for one time of the whole issue and that effectively in an issue which has 50% QIB and 60% of that is allotted to anchor investors reduces the issue size for QIB’s to 20% of the IPO. The bucket size of the HNI is 15% and the retail bucket is 35%. The issue is now reduced to 70%. When an HNI writes out a cheque for 1 time the IPO size what he is doing is subscribing the whole IPO 1.42 times and the HNI bucket is subscribed a whopping 6.67 times. This distorts the demand and kicks of the grey market and that in turn attracts the retail investor.

As long as the people make money no one complains but this is the pitfall of the system. The book built becomes even more distorted when the issue is 75% compulsory QIB. In this case with 60% allocation to Anchor the residual book for QIB becomes 30%, HNI 15% and retail 15% making a total of 60%. Here when the HNI applies for one time the IPO size the book gets subscribed 1.66 times and the HNI portion remains the same at 6.67 times.

All in all the response was overwhelming to the issue and was in no small measure helped by the leveraged HNI. Let’s keep our fingers crossed for the spate of issues expected to hit the markets in the coming months.