The IPO frenzy is known to sustain in the upcoming new year with a slew of mega offers thrown to be open for subscription. Besides the shares finding their way on the Indian exchange, the company also gains popularity and publicity through the endeavour. Importantly, the point to be noted here is that for you application to be considered under the quota you need to be possessing the shares your demat account as on the date of the company’s RHP filing to the ROC.
Holding a few shares of companies whose subsidiaries plan IPOs is often beneficial for investors to increase their allotment chances. As we will see in this article, shareholder quota in IPOs is a great way to boost allotment chances. Thus, we have compiled this list of upcoming IPOs with shareholders quota which should come in handy for investors.
When a company goes public through an initial public offering, it not only provides for buying shares by new investors but also grants certain privileges to the existing shareholders of that company. Shareholder quota is one such advantage. It is a special allocation of shareholding reserved only for existing shareholders and hence is a special advantage in the IPO process. Let’s break down what the Shareholder Quota is and how it works.
What is the Shareholder Quota in IPOs? :-
There is one more category that is known as the shareholder quota in IPOs. When a subsidiary of a listed company issues an IPO, it generally reserves some shares for shareholders of the parent company. This is known as shareholder quota in IPOs. Generally, it is 5% – 15% of the offer.
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Shareholder quota is a reserved quota in an IPO, basically set aside for the existing shareholders of the company or its parent company. That means, if you already are a shareholder in a company coming out with an IPO, or its parent company, you may be eligible to apply for additional shares under this quota.
Let’s understand this with an example. In the case of Aditya Birla Sun Life AMC, the company made an offer of 38,880,000 shares and reserved 1,944,000 shares for shareholders of its parent company Aditya Birla Capital Limited (ABCL). These shareholders could be individuals as well as Hindu Undivided Families (HUFs).
During an IPO, a company may reserve a percentage of its shares for the shareholders of the company or its parent company. Such reservation is referred to as a Shareholder Quota. This allows existing shareholders to make applications for shares under this reserved category and often increases their chances of allotment compared with the general public.
Upcoming IPOs with Shareholders Quota :-
| IPO Name | Parent Company |
| Asirvad Micro Finance* | Manappuram Finance |
| Belstar Microfinance* | Muthoot Finance |
| Ather Energy | Hero MotoCorp |
| Hero FinCorp | Hero MotoCorp |
| NTPC GREEN Energy | NTPC |
| Tata Passenger Electric Mobility | Tata Motors |
| HDB FINANCE | HDFC Bank |
| Reliance Retail | Reliance Industries |
| Reliance Jio | Reliance Industries |
| Canara HSBC Life Insurance Company | Canara Bank |
| NHPC Renewable | NHPC |
| ONGC Green | ONGC |
| SJVN Green Energy | SJVN |
| SBI Mutual Fund | SBI |
| HDFC Ergo | HDFC Bank |
| HDFC Credila | HDFC Bank |
| Kotak AMC | Kotak Mahindra Bank |
| PNB MetLife Insurance | Punjab National Bank |
| Bajaj Energy | Bajaj Hindusthan Sugar |
| Reliance General Insurance | Reliance Capital |
| ICICI AMC | ICICI Bank |
| Axis AMC | Axis Bank |
| Jeevansathi.com | Info Edge |
What are the Benefits of Shareholder Quota? :-
There are several advantages to selecting a shareholder quota for investing in IPOs. To reap the benefits of upcoming IPOs with shareholders quota, one should keep track of them and own at least one share of their parent company. Some of the key advantages of the shareholder quota category are as follows.
- More robust Allotment Chances
Making an application under the Shareholder Quota gives much more reasonable chances of allotment of shares to a retail investor, and more so when the IPO is over-subscribed.
Generally, the retail category gets more subscriptions as compared to the shareholder quota. One classic example is the IPO of Ujjivan Bank, where the retail category was subscribed 48 times while the shareholder category was only covered four times. Needless to say, the chances of allotment are significantly higher in the shareholder category due to one extra layer of eligibility criteria of holding parent company share.
- Potential Listing Gains
If the IPO lists at a premium, then the allotment to these shareholders in the current issue would lead to big listing gains.
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- Taking advantage of large applications
The retail category has a maximum limit of INR 200,000 per application and this is problematic for someone who has more funds and wants to take advantage of the same. On the other hand, the shareholder category allows investors to make large applications by simply purchasing one share of the parent company.
- Exclusive Opportunity
It is a window of opportunity offered only to existing shareholders to enhance their stake in a company in which they are already invested.
Applying in both retail and shareholder categories is even more beneficial for investors as they enjoy higher allotment probability by having two applications in the reckoning. Applications in both categories will be accepted and investors have a better chance of allocation. Nevertheless, there is a cap of INR 200,000 per PAN in such cases as indicated above.
How Does a Shareholder Quota Work? :-
A shareholder quota is a reservation of shares in an IPO for shareholders who meet certain criteria and are active in the company. The rules for shareholder quotas are outlined in the IPO prospectus document. Here’s some information about shareholder quotas.
Now, let us view the whole thing step by step.
- Application Process
Eligible shareholders need to apply separately under the Shareholder Quota. Most of the time, this happens through the same online IPO application process but it is marked specifically under the “Shareholder” category.
Example – In the SBI Cards IPO, the existing SBI shareholders could apply under both the Shareholder Quota and also the quota meant for public shareholders, thereby enhancing their chances of getting allotment.
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- Eligibility Criteria
You will need to have the share(s) of that company or its parent company before a specified date, known as the record date for you to be eligible for the Shareholder Quota. This date, in general, is mentioned in the red herring prospectus of the IPO.
Example – When SBI Cards and Payment Services Ltd. went public in 2020, the shareholders of the bank itself—State Bank of India—were eligible to apply under the Shareholder Quota, subject to their holding SBI shares on the record date.
- Allotment Process
The shares reserved under the Shareholder Quota are offered to eligible applicants on a preferential basis. However, in case the same is oversubscribed, the allotment is done only through a lottery system akin to the general public allotment process.
Example – Tata Technologies is undertaking an IPO and is a subsidiary of Tata Motors. Now if, for example, shares are offered under the Shareholder Quota, then shareholders of Tata Motors may apply to the same. In such a case, suppose Tata Technologies is making an offer to the public of 1,000,000 shares in the Shareholder Quota; then any shareholder holding not less than one share of Tata Motors on the record date can apply to up to all 1,000,000 shares.
Maximum Shares That Can Be Applied Under Shareholder Quota? :-
There are two cases for investors if they are applying under shareholder quota in IPOs.
The maximum limit in shareholder quota is the total number of shares reserved for the category. In the case of Aditya Birla Sun Life AMC IPO, one could have applied for all the 1,944,000 shares available under the shareholder quota if they were holding at least one share of Aditya Birla Capital as on the record date.
Investors applying in both categories need to be mindful that their combined application amount should not exceed INR 200,000. Simply put, one can invest a total of INR 200,000 if applying to both categories.
Combined application amounts in both categories exceeding INR 200,000 will be considered multiple bids and thus rejected .
Why Do Companies Come Up with a Shareholder Quota? :-
The Shareholder Quota is not just a sort of goodwill but part of the strategic move by companies.
Here is why:
- Companies want to reward existing shareholders for their loyalty and continued faith in the growth prospects of the Company.
- Companies through reserved quotas incentivize existing shareholders to participate in the IPO, thereby ensuring that a higher subscription is realized.
- Applying under the Shareholder Quota indicates to the market that the Company is considerate of its shareholders. And, such consideration helps in building if confidence in the markets towards the IPO.
Who Can Apply Under the Shareholder Category in IPOs? :-
HNI, Retail investors, and Employees of the parent company can apply under the shareholder quota in IPOs if holding at least one share of the parent company as on the record date which is usually the date when the Red Herring Prospectus (RHP) is filed. It is worth highlighting that shares of the parent company need to be in the investors’ demat accounts on the record date. Since we follow the T+2 settlement cycle in India, it means that investors need to purchase the parent company shares two days ahead of the record date to be eligible.
To participate in the shareholding quota in IPOs, applicants must apply in the shareholder’s IPO category.
Understanding shareholders’ quota in an IPO :-
Usually when a subsidiary entity floats an IPO, it reserves some portion for the shareholders’ quota of the parent company. There can be an allocation or reservation against this quota depending on the IPO size and it can range between 5-15 percent. This kind of is a privilege that shareholders’ get and their allotment chances can hence be improved.
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How Does This Affect Eligibility for the Shareholder Quota? :-
Whenever any company comes out with an IPO and shares are issued under the Shareholder Quota, it typically sets a record date—a cutoff date by which you have to be an existing shareholder to be eligible for applying in this quota. Now, here is how the T+1 settlement cycle fits in.
Record Date This is the cut-off date announced by the company in the IPO prospectus. The shares have to be in your demat account by the end of this day for you to be considered an existing shareholder as of this date.