How IPO allotment process works

Publisehed: 2017-06-01 00:00:00

SEBI revamped share allotment methods in 2012, setting new minimum application amounts and allocation rules for QIBs, NIIs, and RIIs.

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The minimum application amount was fixed at ₹10,000 to ₹15,000 (previously ₹5,000 to ₹7,000). This amount is then divided by shares as per the price band to arrive at the lots for the shares.

Every IPO that gets listed issues a specific number of shares and it is allocated to different investor categories: Qualified Institutional Buyers (QIBs) have an allocation of 50% of shares of the total issue size , Non Institutional Investors (NIIs)/ High Net worth individuals (HNIs) have an allocation of 15% and Retail Individual Investors(RIIs) have an allocation of 35%.

QIB

Allotment is at the discretion of the merchant banker. Shares are allotted proportionately. So if shares are oversubscribed by say, five times then an application for 10,00,000 shares will receive only 2,00,000 shares.

NII

Shares are allotted proportionately just like QIB.

RII

The process is a little more complex when it comes to RII applications.
The total number of applications received in the RII category is grouped together to determine the total demand in this category. No applicant can be issued shares less than one lot.
If the total demand in this category is less than or equal to the retail portion at or above the offer price full allotment will be made to the extent of the valid bids.
If the total demand is more, the total number of equity shares available for allotment to RIIs is divided by the minimum bid lot. This gives the maximum number of RIIs who can be allotted the shares. So if 20,00,000 shares need to be allocated to RIIs and the minimum lot size is 200 the 10,000 applicants will be allotted shares. If 10,000 applications were received then each application will receive one lot each irrespective of how many lots they applied. If it is less, all 10,000 applications get one lot each and the excess is distributed equally among the applicants who have bid for more lots. If it is more, then 10,000 applications get one lot each distributed by computerized draw of lots (lottery).
Therefore, it is possible that an applicant who applied for a minimum lot, gets his entire share, whereas someone who has applied for more lots gets nothing. Bidding for the maximum lot does not increase your chances of getting an allotment.

If any category is undersubscribed and the other(s) are oversubscribed the unsubscribed portion can be allotted to the other categories.

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