Do you know an anchor investor can make or break a fundraising?
These reputed institutional investors play a significant role by providing early investments and stability to an IPO and also acting as catalysts in the fundraising process.
According to prime database, anchor investors subscribed to 34% of the total funds raised by IPOs in FY24 whereas QIBs (including Anchors) subscribed to 58% of the total issues over the year implying the role of anchor investors.
Here are some of the top contributions made by Anchor investors in FY24. The companies listed below saw high investments from Anchor investors demonstrating the strategic influence of anchors over IPOs across various sectors in India.
Understanding Anchor Investors
Anchor investors primarily include, investors who are usually HNIs and institutional investors, are part of Qualified institutional buyers (QIB), and include mutual funds, foreign portfolio investors, insurance companies, AIFs sovereign wealth management firms, etc, and are allotted shares one day before the IPO listing date
| Investor Type | Retail | NII/HNI | QIB | Anchor |
| Investment Limit | Up to Rs 2 lakh | Above Rs 2 lakh | No minimum Maximum up to the available QIB quota | Minimum of Rs 10 Cr(Mainboard IPO) and Rs 1 Cr (SME IPO) |
| Quota | 100% Book building IPO – Not less than 35%. Compulsory book-built issue – Not more than 10%. Fixed price issue – 50% of Net Issue. | 100% Book building IPO – Not less than 15% QIB route issue – Not more than 15%. (10% for investments more than Rs 10 lakh and 5% for investments less than Rs 10 lakhs) Fixed issue IPO – 50% of Net Issue shares with QIB) | 100% Book building IPO – Not more than 50% Compulsory book-built issue (QIB route issue) – At least 75% of the offer. Fixed price issue – 50% of Net Issue(shares with NII) | Maximum 60% of the QIB quota and 30% of the total issue size in the book-building IPOs. |
| Lock-in-period | No lock-in period | No lock-in period | No lock-in period | 30 days – 50% 90-days – 50% |
Things to know about Anchor Investor’s Bidding process
- Bidding for anchor investors starts one day before the company issues its IPO.
- Anchor investors cannot modify or withdraw their bids.
- Anchor investors are allocated shares on the same date as the bid is submitted.. Family and friends, merchant bankers, or promoters of a company are not eligible to apply as anchor investors in an IPO.
Understanding the Crucial Role of Anchor Investors in Pre-IPO Investments
- Facilitate book building
Anchor investors typically hold large stakes in the IPO of a company and thus contribute a significant share in the book-build of an IPO.
For instance, if a company raises ₹10 crore by issuing 10 lakh shares, and raises 45% of this amount through anchor investors (in compulsory book building issue), they are securing their IPO in advance. Anchor investor commits 45% of the total book built and cannot sell their stake until the 30-day lockdown period ends. This. reduces the volatility of the IPO, thus securing the book-building process.
- Setting the tone for IPO –
Anchor investors are like the backbone of the IPOs, extending support to become the deciding factor of whether the IPO will be a success or not.
For instance, in the case of First Cry, a book built of ₹4,193Cr saw a significant portion approximately 45% being raised by Anchor investors. These included well-known anchors such as the Govt. of Singapore, Abu Dhabi Investment fund, Fidelity Funds, and Goldman Sachs fund among others. This participation was observed from every category of anchor investors and had set a good tone for the IPO ahead, among retail investors. The IPO turned out to be a success was subscribed 12.22 times.
- Boost Investor’s confidence- Participation of successful and prominent anchor investors builds confidence among other investors looking to invest in the IPO. Their investments act as a valuable endorsement of the company’s worth.
Successful known IPOs in FY24 saw successful HNIs and funds investments. Some examples of these investor-backed IPOs are given below
| Companies | IPO dates | Anchor investment weightage (%) | Subscription Times | Listing gains (%) | Prominent anchor investors |
| IREDA | Nov, 2021 | 29.92 | 38.8 | 87.5 | IFL Asset Management, SBI Banking & Financial Services Fund, Goldman Sachs India Equity Portfolio, Whiteoak India Opportunities Fund |
| Netweb Technologies | July, 2023 | 30 | 90.4 | 82.1 | Nippon India Small Cap Fund. ICICI Prudential Innovation Fund, Nomura Funds Ireland -India Equity, Goldman $achs India Equity Portfolio |
| Cyient DLM | June, 2023 | 44 | 67.3 | 58.7 | Abu Dhabi Investment Authority, Nomura Funds Ireland – India Equity, Ashoka India Investment Trust, Nippon India Small Cap Fund |
| Azad Engineering | Dec, 2023 | 29.84 | 80.7 | 29.3 | Nomura Funds Ireland -India Equity, Goldman $achs India Equity Portfolio Nippon Life India Small Cap, ICICI Prudential, HDFC MF, Tata Infrastructure Fund |
| Signature Global | Sep,2023 | 43.63 | 11.9 | 19.1 | Nomura India Stock Mother Fund, Kotak Multicap Fund, Quant Multi-Asset Fund Eastspring Investments Fund |
- Transparency and Credibility: The names and share allocations of anchor investors are disclosed before the IPO, adding a layer of transparency that makes different types of investors feel safe while making investments and enhances investor confidence.
Conclusion
In summary, anchor investors are crucial to the success of IPOs, significantly influencing fundraising outcomes with their large investments and strategic backing. Their participation not only validates a company’s worth but also enhances investor confidence and stabilizes stock prices post-IPO. As key players in the financial ecosystem, anchor investors continue to play a pivotal role in shaping successful IPOs and driving future growth.
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