An anchor investor is a major institutional investor who invests a large amount in a company right before its initial public offering (IPO), showing trust in the company and encouraging other investors also to participate.
Content:
- Who Are Anchor Investors?
- Anchor Investor Example
- Role of Anchor Investor
- Anchor Investor Lock In Period
- Anchor Investor Sebi Guidelines
- List Of Anchor Investors In India
- Who Are Anchor Investors? – Quick Summary
- Anchor Investor Meaning – FAQs
Who Are Anchor Investors?
Anchor investors are reputable institutional investors, such as mutual funds, insurance companies, and pension funds, that enter an IPO before it’s open to the public. Their primary role is to set a tone for the IPO, establishing trust and endorsing the company’s potential. These investors are often perceived as a mark of credibility due to their rigorous due diligence before investing.
Anchor Investor Example
Consider the case of a well-known tech startup planning to go public in India. Just days before its IPO launch, a globally recognized mutual fund announces its intention to invest a significant amount as an anchor investor. This endorsement instills confidence in other potential investors and sets a positive sentiment around the company’s stock, often resulting in a successful IPO subscription.
Role of Anchor Investor
Anchor investors play a pivotal role in stabilizing and boosting the demand for a company’s securities. They act as a cornerstone for the offering, demonstrating faith in the company’s potential.
Additional roles include:
- Offering pricing guidance based on their perceived value of the company.
- Serving as a catalyst to attract other institutional and retail investors.
- Reducing post-listing stock volatility through long-term investment commitment.
Anchor Investor Lock In Period
For anchor investors, the shares they purchase come with a specific lock-in period to ensure commitment. 50% of these shares have a lock-in period of 30 days, while the remaining 50% are locked for 90 days from the grant date.
This mechanism ensures that the anchor investor remains invested in the company post-IPO, instilling a sense of security among other investors.
Anchor Investor SEBI Guidelines
As per the Securities and Exchange Board of India (SEBI), anchor investors are categorized as QIBs (qualified institutional buyers). They must apply for shares worth a minimum of Rs. 5 crores in an IPO. Importantly, their application should be placed a day before the IPO opens for public subscription, ensuring they’re genuinely committed to the offering.
List Of Anchor Investors In India
Some prominent anchor investors in India include:
- ICICI Prudential Mutual Fund
- Edelweiss Mutual Fund
- BNP Paribas Arbitrage
- HDFC Mutual Fund
- Integrated Core Strategies (Asia) Pte Ltd
- Aditya Birla Sun Life Insurance Company
- Nippon India Mutual Fund
- Government Pension Fund Global
- Bandhan MF.
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Who Are Anchor Investors? – Quick Summary
- An anchor investor is an esteemed institutional entity that invests substantially in a company’s IPO, reflecting confidence in the firm.
- These investors comprise renowned entities such as mutual funds and insurance companies that partake in an IPO before public access.
- Anchor investors principally bolster demand for securities and offer pricing insights, among other roles.
- They adhere to lock-in periods, with 50% of their shares locked for 30 days and the other half for 90 days.
- According to SEBI guidelines, anchor investors must be QIBs and should apply for an IPO a day before its public release.
- Notable anchor investors in India encompass Government Pension Fund Global, ICICI Prudential Mutual Fund, and HDFC MF, among others.
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Anchor Investor Meaning – FAQs
Anchor investors are well-regarded institutional investors, often encompassing entities like mutual funds, insurance firms, and pension funds. They make substantial early investments in an IPO, setting a precedent and influencing other potential investors.
One primary benefit of being an anchor investor is the preferential allocation of shares. They get a reserved portion of shares in the IPO, allowing them access to potentially lucrative investment opportunities before the broader market.
The principal difference between an anchor investor and an angel investor is that while an anchor investor invests primarily in IPOs of companies, signaling confidence to the market, an angel investor provides capital to startups at their nascent stages, often in exchange for equity or convertible debt.
For offers amounting to less than ₹250 crores, a maximum of 15 anchor investors is permissible. However, when the offer size exceeds ₹250 crores, the number can extend up to 25 anchor investors.
To qualify as an anchor investor, the entity must be a Qualified Institutional Buyer (QIB). Moreover, they should exhibit a track record of sound investments and have the financial capability to invest a minimum amount, typically starting from Rs. 5 crores, in the IPO.
The tenure associated with an anchor investor pertains to the lock-in periods of their shares. Initially, 50% of their shares are locked for 30 days, and the subsequent 50% is subjected to a 90-day lock-in from the grant date. This ensures their commitment to the company post-IPO.
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