Private placement is one of the methods to generate capital for the business expansion of the companies or to revive weak financial position of a company. Private placement is a process under which certain shares, stocks or bonds are offered to private investors rather than offering such shares, stocks or bonds to public via initial public offering
Recently, Securities and Exchange Board of India (SEBI) has received representations from various stakeholders to resolve “fast finger first” issue. “Fast finger first” means a process of allocating securities to bidders based on time priority in bidding for issuances with fixed parameters.
With the intent to deal with this “fast finger first” issue, SEBI has reviewed certain provisions applicable to the electronic bidding platform (EBP). Accordingly, SEBI has identified the need to modify the book building process for private placement of debt to address the concern of ‘fastest finger first’.
The major concern with fast finger first is that bidders are not getting allocations even though they have performed certain parameters involved in the bidding process (i. e. issuance pre-listing, high ratio of greenshoe to base issue size, limits on arrangers placing bids on behalf of clients, etc.,) due to a mere reason of some bidders submit the bid prior in time than others.
SEBI has tweaked the rules applicable to private placement of debt to modify the book building process to ensure bidders with the best bid will get the allocation of the bid, unlike earlier bidder with the best technology to place the bid faster will get the bid. These rules will be effective from January 01, 2023.
A new perspective of ‘anchor investor’ is introduced. Anchor investor will serve as an option, for issuer of securities to get assurance for subscription from potential investors with assessment of demand for issued securities.
Issuer has the flexibility to decide quantum of allocation of securities to anchor investors, with a ceiling not exceeding 30% of the base issue size. Interestingly, securities offered to anchor investors would not be available for bidding on EBP.
It is hoped that revised rules will ensure fair play resulting in the right bidder getting the bid – this will benefit the bidder and issuer from business and financial perspectives.
