Allotments in IPOs
 
Firm Allotments
A company making an issue to public can reserve some shares on “allotment on firm basis” for some categories as specified in SEBI ICDR Regulations 2009. Allotment on firm basis indicates that allotment to the investor is on firm basis. SEBI ICDR Regulations 2009 provide for maximum % of shares which can be reserved on firm basis. The shares to be allotted on “firm allotment category” can be issued at a price different from the price at which the net offer to the public is made provided that the price at which the security is being offered to the applicants in firm allotment category is higher than the price at which securities are offered to public.

Reservations on a Competitive Basis
Reservation on Competitive Basis is when allotment of shares is made in proportion to the shares applied for by the concerned reserved categories. Reservation on competitive basis can be made in a public issue to the Employees of the company, Shareholders of the promoting companies in the case of a new company and shareholders of group companies in the case of an existing company, Indian Mutual Funds, Foreign Institutional Investors (including non resident Indians and overseas corporate bodies), Indian and Multilateral development Institutions and Scheduled Banks. Reservation for employees in Public/ Rights Issues can also be done for employees of subsidiaries and material associates of the issuer who financial statements are consolidated with the issuer’s financial statements.

Any Preference while doing the Allotment?
No, there cannot be any discretion in the allotment process. Prior to the SEBI Circular on DIP Guidelines dated September 19, 2005, the allotment to the Qualified Institutional Buyers (QIBs) was on a discretionary basis. This however has been amended and all allottees are allotted shares on a proportionate basis within their respective categories.

Basis of Allotment
In case of over-subscription in a fixed price issue, the allotment is done on a proportionate basis.

In the case of a bookbuilding issue, after its closure, the bids received are aggregated under different categories, such as reserved allotments, Qualified Institutional Buyers (QIBs), Non-Institutional Buyers (NIIs) and Retail Individual Investors. The oversubscription ratios are calculated for each of the categories against the shares reserved for each of the categories in the offer document. Within each of these segments, the bids are segregated into different categories based on the number of shares applied for. The oversubscription ratio is then applied to the number of shares applied for and the number of shares to be allotted for applicants in each of the buckets is determined. Then, the number of successful allottees is determined.

In the case of a fixed price issue, after its closure, the applications received are aggregated under two categories; applications below Rs. 1, 00,000 and those above this amount. The oversubscription ratios are calculated for each of the categories against the shares reserved for each of the categories in the offer document. Within each of these segments, the bids are segregated into different categories based on the number of shares applied for. The oversubscription ratio is then applied to the number of shares applied for and the number of shares to be allotted for applicants in each of the buckets is determined. Then, the number of successful allottees is determined.

Number of Days for an Investor to Receive the Refund Order/Allotment Advice
Companies are required to finalize the basis of allotment within 30 days from the closure of the issue in case of a fixed price issue and within 15 days from the closure of the issue in case of a book building issue or else they are liable to pay interest at the rate of 15% per annum. The refund orders/allotment advice is dispatched within two working days of finalizing the basis of allotment.