Reliance Power seeks SEBI nod for early allotment to QIBs

Thursday, January 24, 2008

Reliance Power seeks SEBI nod for early allotment to QIBs

Source: The Economic Times

At a time when liquidity is of primary importance Reliance Power has proposed to make available $10 billion to institutional investors for the secondary market. According to a source, the company has written a letter to the Securities and Exchange Board of India (SEBI) on Wednesday to allow them to make an early allotment of equity shares to qualified institutional buyers (QIBs). If allowed, the move will see refunds of over Rs 40,000 crore making its way to other investment avenues.

However, SEBI sources said it will not be approved since it is anti-retail investor. “Why should only QIBs be given the chance to take advantage of the recovery in the market. Reliance may be doing it just to ensure that the QIBs don’t back out,” said a source with the stock market regulator.

The QIB portion of the recently-concluded public issue was subscribed nearly 83 times with a little less than 500 entities submitting their bids. The total value of bids was pegged at Rs 5,08,486 crore. As institutional investors are required to pay 10% upfront, Rs 50,848 crore has already been collected as against the QIB portion of Rs 6,156 crore.

“The excess application money (to be refunded) is around Rs 40,000 crore or $10 billion,” said a source. “The recent fall in the secondary market has provided investors with an excellent buying opportunity and if the whole refund process is completed faster, the secondary market will also benefit. That’s the reason for the letter,” he added. Meanwhile, company officials declined to comment on the issue.

According to market buzz, the move will also enable foreign institutional investors entering through the participatory notes (PNs) route to take further exposure as the IPO had exhausted their existing limits.

Incidentally, SEBI had recently amended the guidelines related to the investment through PN route. Each FII can issue PNs amounting to only 40% of its total assets under custody (AUC). It is believed that around $30-40 billion worth of bids has come through PNs.

Importantly, the letter only aims at an early allotment to the institutional bidders. It is believed that retail investors and HNIs will get the allotment after the institutional ones. According to SEBI guidelines, allotment of equity shares has to be done within a maximum of 15 days after the issue closes for subscription.

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