Active Stocks
Thu Jun 20 2024 15:56:35
  1. Tata Steel share price
  2. 182.35 1.28%
  1. HDFC Bank share price
  2. 1,669.00 0.66%
  1. ITC share price
  2. 423.35 -0.08%
  1. Tata Motors share price
  2. 978.10 0.07%
  1. State Bank Of India share price
  2. 843.80 -1.03%
Business News/ Markets / Ipo/  IPO investors call for rules to keep anchors from selling early
BackBack

IPO investors call for rules to keep anchors from selling early

Investors in US IPOs are demanding equal treatment in the rules around how stock is allocated to anchor investors, according to a survey by KKR Capital Markets. 87% of institutional investors believe anchor investors should be required to hold onto their shares for a specified period after listing.

An overwhelming 87% of 62 institutional investors said anchor investors — who agree to buy IPO shares before the offerings are sold to a broader group — should be required to hold onto their shares for a specified period after the listing (iStock)Premium
An overwhelming 87% of 62 institutional investors said anchor investors — who agree to buy IPO shares before the offerings are sold to a broader group — should be required to hold onto their shares for a specified period after the listing (iStock)

Some investors in US initial public offerings are demanding rules what they see as unequal treatment in the rules around how stock is allocated to so-called cornerstone investors in new listings.

An overwhelming 87% of 62 institutional investors said anchor investors — who agree to buy IPO shares before the offerings are sold to a broader group — should be required to hold onto their shares for a specified period after the listing, according to a KKR Capital Markets survey in December. In several prominent recent US listings where the companies chose to involve so-called cornerstones, no such restrictions on selling were imposed.

The polled investors, who collectively manage more than $10 trillion in assets under management, were almost evenly split as to whether anchor investors should be introduced at all.

The survey comes after a group of sizeable IPOs in the second half of last year allocated as much as 90% of the available stock to a concentrated group of large, long-only investors. While bankers touted the benefits of having such investors on board as providing added confidence and stability for the deal, and there have been no indications that anchors sold down their stakes, companies such as Arm Holdings Plc and Birkenstock Holding Plc still saw choppy trading after their debuts. The slumps have weighed on sentiment for other potential issuers.

“For those companies that come to market with anchor investors, it will be important to see those anchors ‘put their money where their mouth is’, with a true lock-up structure in place to ensure alignment with new investors," said David Bauer, head of KKR’s public equity capital markets business.

Nearly 70% of the investors polled by KKR think the lock-up duration should be 180 days, and another 11% believe it should be even longer, at 360 days. 

Investors surveyed are generally upbeat about prospects of this year’s IPOs, with 61% saying they don’t expect the presidential election to reduce their appetite for new issues. Many respondents also expect the Federal Reserve to cut rates, with 59% of them forecasting the 10-year Treasury will end the year yielding between 4% and 4.5%, the survey showed.

Anchor Investors

Last year’s fall class of new listings was characterized by prominent investors taking stakes in the new offerings, which had been relatively rare in the US before regulatory reforms in 2019. 

Arm Holdings’s $5.3 billion September offering allocated as much as $735 million worth of shares to its biggest customers, including Apple Inc. and Nvidia Corp. In the same vein, Birkenstock said it would sell up to $300 million of its $1.5 billion offering to the Norwegian sovereign fund, T. Rowe Price Group Inc. and veteran investor Henry Ellenbogen’s Durable Capital Partners LP

KKR is currently on the road marketing portfolio company BrightSpring Health Services Inc.’s IPO, which is set to raise as much as $1.36 billion. The deal doesn’t include a cornerstone allocation. Amer Sports Inc., which is in the market to raise up to $1.8 billion in a new share offering, does have anchors, and stipulated a 180-day lock-up for share subscriptions from its three existing investors, according to a term sheet seen by Bloomberg News.

The risk with a concentrated allocation to the top dozen or so long-only funds is that smaller investors and hedge funds are left out in the cold. If the initial allocation is too small for the investment to matter in an investor’s overall portfolio, they may not be inclined to further build their stake in the public market.

“Cornerstone investors are an important part of helping building momentum for the overall IPO market," said West Riggs, head of equity capital markets at Truist Securities. “It is also important that cornerstone investors do not take up too much of the overall allocation as the public float still needs to be large enough to work for the rest of the book."

3.6 Crore Indians visited in a single day choosing us as India's undisputed platform for General Election Results. Explore the latest updates here!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 24 Jan 2024, 09:36 AM IST
Next Story footLogo
Recommended For You
GENIE RECOMMENDS

Get the best recommendations on Stocks, Mutual Funds and more based on your Risk profile!

Let’s get started