Wealthy investors could borrow up to Rs 70,000 cr per issue to apply for good large-sized IPOs: Icra
Typically, high net worth individuals (HNIs) make leveraged bets in IPOs to make listing-day gains. As the HNI portion of an IPO with high investor interest sees huge demand, investors have to make a big-ticket application in order to increase the chances of allotment. Non-banking finance companies (NBFCs) finance this money by charging interest between 9 per cent and 12 per cent (per annum) for seven days. The average subscription in the HNI portion for IPOs in the past one year has been more than 80 times. For instance, the nearly Rs 1,900-crore IPO of Avenue Supermarts saw applications worth nearly Rs 80,000 crore — 278 times the shares on offer — in the HNI category.
“The IPO financing market was very vibrant in 2016-17, supported by an increase in HNI investors’ interest in IPOs in the quest for listing gains. With banks not active in this segment due to regulatory restrictions, the field is dominated by NBFC arms of some of the leading players in the capital markets and wealth management businesses,” said Karthik Srinivasan, senior vice-president and group head-financial sector ratings, Icra.
A favourable market outlook and healthy post-listing performance has resulted in a surge in HNI interest towards IPOs. According to Icra, the median HNI subscription in IPOs in 2016-17 was 80 times, compared with just two times in 2015-16. “This has created a market for providing short-term capital to the HNI investors for funding the IPO application,” the rating agency said.