Understanding Hyundai’s IPO Allotment Process: A Guide for Retail and High Net Worth Investors
As Hyundai gears up for its initial public offering (IPO), which is set to be India’s largest public issue, many investors are keen to understand how the IPO allotment process works. This article provides a comprehensive overview of the IPO allotment mechanism, particularly focusing on retail investors and high net worth individuals (HNIs), ensuring that you are well-informed as you navigate this exciting investment opportunity.
What is an IPO?
An Initial Public Offering (IPO) is the process through which a private company offers its shares to the public for the first time. This allows the company to raise capital from a wide range of investors, while also providing an opportunity for the public to invest in the company. Hyundai’s IPO is particularly significant, as it marks a major milestone in the Indian market, attracting attention from both retail and institutional investors.
The Role of the Registrar
The IPO allotment process is managed by a registrar, which is responsible for overseeing the distribution of shares. The allotment depends on the number of shares offered and the valid bids received at or above the cut-off price. The registrar ensures that the process is fair and transparent, adhering to the regulatory guidelines set by the Securities and Exchange Board of India (SEBI).
Categories of Investors
In an IPO, shares are typically allocated among three main categories of investors:
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Qualified Institutional Buyers (QIBs): This category includes large institutional investors such as mutual funds, insurance companies, and pension funds. Approximately 50% of the shares in an IPO are reserved for QIBs.
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Retail Individual Investors (RIIs): Retail investors are individuals who invest smaller amounts, typically up to ₹2 lakh. About 35% of the shares are allocated to this category.
- Non-Institutional Investors (NIIs): This group includes high net worth individuals and other non-institutional investors. They are allocated around 15% of the shares.
Allotment Process for Retail Investors
The allotment process for retail investors is straightforward but can vary based on the level of subscription:
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Lot Size: Shares are typically allotted in lots, which is a set number of shares. For instance, if the lot size is 10 shares and 500,000 shares are reserved for retail investors, then a maximum of 50,000 retail investors can receive shares.
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Under-subscription: If the retail category is under-subscribed, all applicants will receive full allotment of shares.
- Oversubscription: If the number of applications exceeds the available shares, a computerized lottery system is employed. Each winning applicant receives a maximum of one lot. For example, if 1,000 investors apply for 550,000 shares but only 500,000 shares are available, a lottery will determine who gets the shares.
Allotment Process for High Net Worth Individuals (HNIs)
The NII category is further divided into two groups based on the investment amount:
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Investors between ₹2 lakh and ₹10 lakh: One-third of the reserved shares are allocated to this group.
- Investors over ₹10 lakh: Two-thirds of the reserved shares are allocated to this group.
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Under-subscription: If the NII category is under-subscribed, all investors will receive full allotment.
- Oversubscription: In cases of oversubscription, each NII investor will receive at least one lot based on the minimum application size. Any remaining shares will be allotted on a pro-rata basis. Additionally, leftover shares in the NII category may be used to meet excess demand in other categories.
Minimum Subscription Requirement
For an IPO to be deemed successful, it must achieve a minimum subscription of 90%. This requirement ensures that the company raises sufficient capital to meet its financial objectives and fulfill its growth plans.
Conclusion
Hyundai’s IPO presents a significant opportunity for both retail and high net worth investors. Understanding the allotment process is crucial for making informed investment decisions. By knowing how shares are allocated and the implications of subscription levels, investors can better navigate the complexities of the IPO market. As the IPO opens on Tuesday, staying informed will empower you to seize this opportunity effectively.