ESAF Small Finance Bank IPO Anchor Allocation at 29.19%

About the ESAF Small Finance Bank IPO

ESAF Small Finance Bank IPO opens for subscription on 03rd November 2023 and closes on 07th November 2023. The stock has a face value of ₹10 per share and the price band for the book building IPO is in the range of ₹57 to ₹60. The IPO of ESAF Small Finance Bank Ltd will be a combination of a fresh issue and an offer for sale (OFS). The fresh issue portion of ESAF Small Finance Bank Ltd IPO comprises the issue of 6,51,16,667 shares, which at the upper price band of ₹60 per share translates into fresh issue size of ₹390.70 crore. The offer for sale (OFS) comprises the sale of 1,20,50,000 shares, which at the upper price band of ₹60 per share will translate into an offer for sale (OFS) size of ₹72.30 crore. While ESAF Financial Holdings will offer 82.10 shares, PNB Metlife Insurance and Bajaj Allianz Life Insurance will offer the remaining 38.40 lakh shares in the OFS. The overall IPO size of ₹463 crore will comprise the issue and sale of 7,71,66,667 shares at a price of ₹60 per share.

The company will use the fresh funds to enhance its capital adequacy and build capital buffers to support future growth in the asset book. The IPO will be lead managed by ICICI Securities, DAM Capital Advisors (formerly IDFC Securities), and Nuvama Wealth Management. Link Intime India Private Ltd will be the registrar to the issue. The basis of allotment will be finalized on 10th November 2023 and the refunds will be initiated on 13th November 2023. In addition, the demat credits are expected to happen on 15th November 2023 and the stock will list on 16th November 2023 on the NSE and the BSE.

A brief on the anchor allocation of ESAF Small Finance Bank

The anchor issue of ESAF Small Finance Bank saw a relatively strong response on 02nd November 2023 with 29.19% of the IPO size getting absorbed by the anchors. Out of the 7,71,66,667 shares (771.67 lakh shares approximately) on offer, the anchors picked up 2,25,24,998 shares (225.25 lakh shares approximately) accounting for 29.19% of the total IPO size. The anchor placement reporting was made to the BSE late on Thursday, November 02nd, 2023; one working day ahead of the IPO opening on Friday 03rd November 2023. The IPO of ESAF Small Finance Bank opens on 03rd November 2023 in the price band of ₹57 to ₹60 and will close for subscription on 07th November 2023.

The entire anchor allocation was made at the upper price band of ₹60 per share. This includes the face value of ₹10 per share plus a premium of ₹50 per share, taking the anchor allocation price to ₹60 per share. Let us focus on the anchor allotment portion ahead of the ESAF Small Finance Bank IPO, which saw the anchor bidding opening and also closing on 02nd November 2023. Prior to the anchor allocation, here is how the overall allocation looked.

Here it must be noted that the 2,25,24,998 shares issued to the anchor investors on 02nd November 2023, will be reduced from the QIB quota above and only the residual amount would be available to QIBs in the IPO. The overall allocation to QIBs includes the anchor portion, so the anchor shares allotted will be deducted from the QIB quota for the purpose of the public issue.

Finer points of anchor allocation process

Before we go into the details of the actual anchor allotment, a quick word on the process of anchor placement. The anchor placement ahead of an IPO/FPO is different from a pre-IPO placement in that the anchor allocation has a lock-in period of just one month, although under the new rules, part of the anchor portion will be locked in for 3 months. It is just to give confidence to investors that the issue is backed by large established institutions. Here are details of the anchor lock-in for the issue of ESAF Small Finance Bank.

However, the anchor investors cannot be allotted shares at a discount to the IPO price. This is explicitly stated in the SEBI revised regulations as under, “As per the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirement) Regulations, 2018, as amended, in case the Offer Price discovered through book building process is higher than the Anchor Investor Allocation Price, then the Anchor investors will be required to pay the difference by the pay-in as specified in the revised CAN.

An anchor investor in an IPO is normally a qualified institutional buyer (QIB) like a foreign portfolio investor or mutual fund or insurance company or a sovereign fund which invests before the IPO is made available to the public as per SEBI regulations. Anchor portion is part of the public issue, so the IPO portion to the public (QIB portion) is reduced to that extent. As initial investors, these anchors make the IPO process more attractive for investors, and instil confidence in them. Anchor investors also largely aid in price discovery of the IPO

Anchor allocation investors in ESAF Small Finance Bank

On 02nd November 2023, ESAF Small Finance Bank opened and also completed the bidding for its anchor allocation. There was a strong and robust response as the anchor investors participated through the process of book building. A total of 2,25,24,998 shares were allotted to a total of 14 anchor investors. The allocation was done at the upper IPO price band of ₹60 per share (including premium of ₹50 per share) which resulted in an overall anchor allocation of ₹135.15 crore. The anchors have already absorbed 29.19% of the total issue size of ₹463 crore, which is indicative of fairly robust institutional demand.

Listed below are the 14 anchor investors who individually got allotted the entire anchor share allocation ahead of the IPO of ESAF Small Finance Bank. The entire anchor allocation of ₹135.15 crore was spread across these 14 major anchor investors listed below. The 14 anchors listed below accounted for 100% of the total anchor allocation. Out  of the 14 anchors, 8 anchor investors got allocations of ₹10 crore and above, while the other 6 anchor investors got anchor allocations of less than ₹10 crore.

Data Source: BSE Filings (Value Allocated in ₹ in Crore)

The above table includes the entire list of 14 anchor investors that got allotted shares in the anchor portion of ESAF Small Finance Bank Ltd. However, for those who want to access the detail anchor allocation report on the website of BSE, can download the report from the hyper link below.

https://www.bseindia.com/markets/MarketInfo/DownloadAttach.aspx?id=20231102-48&attachedId=af069457-a3e0-4368-8484-7b9407003cf0

For those of you who are unable to click this link, they can also copy this link and paste in the browser. Alternatively, one can also find details of the anchor allocation under the Notices section of the BSE on the website www.bseindia.com. It must be noted here that not a single Indian mutual fund participated in the anchor allocation of ESAF Small Finance Bank Ltd, a day ahead of its IPO. Most of the participants in the anchor allocation were insurance companies, FPIs, P-Notes and AIFs.

Overall, the anchors absorbed 29.19% of the total issue size. The QIB portion in the IPO will be reduced to the extent of the anchor placement done above. Only the balance amount will be available for QIB allocation as part of the regular IPO. In this case, out of the 50% QIB allocation in the IPO, the anchors have already absorbed 29.19%, so the balance 20.81% will be available to QIBs in the IPO quota. The general norm is that, in anchor placements, smaller issues find it hard to get FPIs interested while larger issues do not interest mutual funds. ESAF Small Finance Bank did see a good deal of interest from FPIs, P-Notes, AIFs, and insurance companies. However, domestic mutual funds did not participate in the anchor allocation portion.

The anchor response normally sets the tone for the retail participation in the IPO and the anchor response has been fairly steady this time around. Normally, the anchor participation is said to give confidence since the anchors cannot be allotted shares at a price lower than the IPO price. This ensures more skin in the game for these anchor investors.