In an SME IPO (Small and Medium Enterprise Initial Public Offering), the allotment process refers to the distribution of shares to investors who have applied for the IPO. Here's how the allotment is typically done:
1. Application Process
- Investor Subscription: Investors (including retail investors, HNI, and institutional investors) submit their applications for the IPO through the stock exchange platforms (like NSE Emerge or BSE SME) or via their brokers.
- Modes of Application: Investors can apply through ASBA (Application Supported by Blocked Amount), where the application money is blocked in the investor's bank account, or through the traditional non-ASBA method.
2. Determining the Issue Subscription
- Once the IPO closes, the total number of shares applied for by investors is compared to the total number of shares available in the issue. The subscription can be:
- Oversubscribed: More shares have been applied for than available.
- Undersubscribed: Fewer shares have been applied for than available.
- Fully Subscribed: The number of shares applied for matches the number of shares available.
3. Allotment Methods
The allotment can be done in different ways depending on the method of the IPO (book-building or fixed price). Here are the main methods of allotment:
a) Pro-rata (Proportional) Allotment
- If the issue is oversubscribed, shares are allotted on a pro-rata basis. This means that the number of shares allotted to each applicant is proportional to the number of shares they applied for relative to the total shares applied.
- For example, if an investor applied for 1,000 shares, and the overall subscription ratio is 2:1 (i.e., the issue is oversubscribed by 2 times), the investor may only receive 500 shares.
b) Lottery System
- If the issue is highly oversubscribed (especially for retail investors), a lottery system may be used to allot shares randomly. This helps ensure fairness and transparency.
- The lottery system is applied primarily when there are more applications than the available shares, particularly in cases where a pro-rata allocation would result in very small share allotments.
c) Allocation for Different Categories
- In the case of an SME IPO, the allotment may be divided among different investor categories:
- Retail Investors (those applying for up to ₹2 lakh): They typically receive allotment based on a lottery or pro rata.
- Qualified Institutional Buyers (QIBs): They usually get a fixed percentage of the IPO, typically around 50%.
- Non-Institutional Investors (NIIs): This category includes HNIs and other large investors, who typically get around 15% of the issue.
- Market Makers: A certain portion of shares is reserved for market makers who help maintain liquidity post-listing.
4. Basis of Allotment
- Basis of Allotment is determined after the IPO closes and is finalized by the Registrar to the Issue (an entity responsible for the IPO's administrative process).
- It includes detailed information on how the shares are distributed to the applicants, including the exact number of shares allotted to each category of investors.
- Announcement: After the allotment process, the Registrar announces the basis of allotment, and the investors are notified about their share allocation.
5. Refunds & Credit of Shares
- If an applicant is not allotted any shares, the application money is refunded (either through ASBA or in other cases via a cheque).
If shares are allotted, the corresponding number of shares are credited to the investor’s Demat Account
