What Happens to the Star Health IPO after it was Subscribed 79%
The Rs.7,249 crore IPO of Star Health & Allied Insurance had a Rs.2,000 crore fresh issue component and a Rs. 5,249 crore OFS component. At the close of the third day of the IPO, Star Health had received applications for 355.85 lakh shares against the total 449.09 lakh shares on offer in the IPO. This translates into subscription of 0.79 or 79% of the IPO.
What was the final shortfall in Star Health & Allied Insurance IPO?
Let us recollect that even before the Star Health IPO opened, it had done an anchor placement of 3,57,45,901 shares at the upper end of the price band of Rs.900 to a total of 62 anchor investors. This had helped them to raise Rs.3,217 crore. Hence it was only the balance Rs.4,032 crore that was available for subscription in the IPO.
The above 3.57 crore shares placed with anchors was adjusted against the QIB quota and thus the QIB portion was proportionately reduced to 2.38 crore shares. The QIB portion was subscribed 1.03 times.
Similarly, even the retail portion (with just 10% quota allocation) had 79.44 lakh shares on offer and got valid bids for 87 lakh shares. This resulted in 1.10 times oversubscription for the retail portion.
The shortfall actually arose in the HNI / NII portion
It was this HNI portion which saw tepid subscription. Against the quota of 119.15 lakh shares in the HNI/NII portion, Star Health got applications for just 22.76 lakh shares. This translates into a subscription of just 0.19 times or 19%. That was largely because the funded applications from the HNIs and even the corporate applications were absent on the last day.
Normally, if the HNI portion gets undersubscribed, it can be allocated to the other segments, but that is only possible if there is sufficient oversubscription in the other segments. However, both the QIB and the retail segments were just about subscribed leaving little room for absorbing the HNI shortfall.
The net result was that Star Health got Rs.3,217 crore from the anchor allocation and Rs.3,193 crore from the IPO. The total collections of Rs. 6,410 crore fell short of the original IPO size of Rs.7,249 crore by a full Rs.839 crore. How will Star Health address this shortfall in IPO collections?
Reducing the size of the OFS of Star Health & Allied Insurance
The option chosen by Star Health was to reduce the OFS size by Rs.839 crore. But first a quick word on what the rule book says in such cases.
1) As per SEBI norms, the IPO subscription received must be sufficient to cover the fresh issue portion (Rs.2,000 crore in this case). That was more than achieved.
2) The second condition for an issue to go through is that a minimum 10% dilution must be achieved in the event of undersubscription. That was also managed.
3) The third requirement is that the QIB should get a minimum threshold, which was not an issue since the QIB portion was fully subscribed.
4) If above conditions are satisfied, then the issue can go through for a reduced amount with the offer for sale portion being reduced accordingly. That approach was adopted.
Star Health is not the first IPO to reduce the size of the issue after tepid subscription. ICICI Securities had also done size reduction of its IPO in 2018. However, this does raise questions over the ability of the Indian market to absorb large sized IPOs. It also hints at supply pressure when the stock actually lists.
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