SBI Card IPO a disappointment for bank's small shareholders

Services Ltd which had tapped the capital markets with its fresh issue of Rs 500 crore and an offer for sale of 13,05,26,798 equity shares was subscribed 26.49 times.

SBI Card and Payment Services Ltd which had tapped the capital markets with its fresh issue of Rs 500 crore and an offer for sale of 13,05,26,798 equity shares was subscribed 26.49 times.

The oversubscription was far below expectations and left a sour taste in the minds of over 18.54 lakh shareholders of the State Bank of India (the parent company). The company had earlier completed allocation to anchor investors. The price band of the issue is Rs 750-755. The company allotted 3,66,69,589 equity shares to 74 anchor investors which included 12 mutual funds who were allotted shares in 48 schemes.

The highest allocation was made to HDFC Mutual Fund who has been allotted 20.53 lakh shares. The top seven anchor investors have been allotted about 40 per cent of the anchor book. This is an extremely fair and well distributed anchor allocation and is not skewed in any manner as has been seen in many other issues.

The issue had opened on Monday, March 2, and closed on Wednesday, March 3, for QIB investors. It closed on Thursday, March 4, for all other investors which include HNIs, Retail, Employee and Shareholders.

Coming to the issue subscription, the QIB portion was subscribed 56.66 times, HNI portion 45.24 times, Retail 2.50 times, Shareholder portion 25.36 times and Employee portion 4.74 times.

This is probably the first time in a well-received issue that the HNI leveraged subscription is below the QIB portion. It maybe of relevance to state that almost the entire HNI portion is on leveraged funds while QIB portion is from own funds.

Secondly post the anchor allocation, the residual issue in case of a 50/15/35 issue becomes 20/15/35 while a 75/15/10 issue becomes 30/15/10. This is relevant that the size of the QIB portion is quite similar to that of the HNI.

Take for example the last issue from Ujjivan Small Finance Bank Limited which was subscribed 113.80 times by QIBs and 486 times by HNIs. The amount raised by HNIs was Rs 52,000 crore against Rs 24,300 by QIBs.

What killed the subscription was the greed and ill-advice of the battery of merchant bankers to the company. The public shareholding of State Bank of India who is the promoter of the company was 14.94 lakh shareholders as of September 30, 2019.

This rose to 18.54 lakh in the subsequent quarter ending December 31, 2019. The same rose by another one lakh shareholders or thereabouts on the record date of RHP on January 18, 2020. This bucket of shareholders had a reservation of 1.30 crore shares.

The merchant bankers cited the case of SBI Life when the shareholder portion was not subscribed. What they did not mention is the fact that at that time the HNI portion itself remained undersubscribed, and therefore the question of the shareholder portion getting subscribed did not arise. Life Insurance business was hardly understood in September 2017, and the HNI portion was subscribed 0.70 times, Retail 0.85 times and Shareholder portion a mere 0.38 times. QIB portion was subscribed 12.56 times.

Immediately after the above issue and its listing, the issue from HDFC Standard Life hit the markets in November 2017, and the issue was oversubscribed 16.60 times by QIBs, 2.29 times by HNIs, 0.94 times by Retail and Shareholder portion undersubscribed at 0.30 times.

If three years ago when life insurance business was not understood, subscription could not have been the basis today for allowing HNIs to bid in shareholder category for any amount and cannibalising the bucket. What was the end result? Overall subscription fell drastically. Of the over 19 lakh shareholders of the bank, just abut 5.82 lakh shareholders have applied while in the retail category the subscription is from 30.82 lakh applications.

While people may argue that grey market machinations hit sentiment and so did COVID-19, why did it affect only shareholder portion and not the retail portion? It is the greed factor. It was believed that the demand in this issue for funds would be in the region of 1.10-1.15 lakh crore and accordingly they did this split in HNI and Shareholder.

The thought process is that demand would increase and financers would make a killing. Man proposes and God disposes. While through commercial paper, finance was raised, demand fell looking at the rate of interest and assuming that the entire money raised through shareholder is added to the HNI category, the total comes to 87,000 crore well short of base expectation.

Shareholder enthusiasm was killed and the bucket hijacked by a handful of HNI investors. The issuer of capital was misguided by the merchant bankers.

SBI Card issue could certainly be termed as a big disappointment for small shareholders of the bank.

(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. The views expressed are personal)

( With inputs from IANS )