Anchor investor

Anchor investor is a concept launched by SEBI in 2009; they are institutional investors who are allotted shares ahead of a company’s IPO. They are also called as cornerstone investors. Anchor investors make other investors confident about the shares and thus improving the demand of the shares.

An anchor investor isn’t allowed to sell their shares for at least 30-days after allotment. An anchor inestor is a qualified institutional investor.

An anchor investor plays a vital role in initial public offerings or IPOs. This may not be an unfamiliar term to those who are actively involved in the listing of an upcoming IPO, but it is somewhat confusing for regular retail investors.

An anchor investor is an institutional investor who participates in an IPO of any company. An anchor investor provides stability to any IPO, as far as the price is concerned. Examples of anchor investors include mutual funds, FPIs (foreign portfolio investors) and insurance firms subscribing to shares before an IPO is open to the public for subscription.

The term “anchor investor” has to do with the role that such an investor plays. An anchor investor means that just as an anchor steadies a ship, an anchor investor is employed by a merchant banker to bring stability to an IPO. Anchor investors play a major role in the process of price discovery as they place huge bids. These indicate the interest from institutional investors in any IPO.

Regarding anchor investors, the Securities and Exchange Board of India (SEBI) describes them as QIBs, or qualified institutional buyers. According to the Securities and Exchange Board of India, anchor investors have to apply a day before any IPO opens for subscription to the public.

SEBI states that an anchor investor means two or more investors who may allocate capital up to Rs.10 crore to an IPO.

If more than two anchor investors partake in any IPO, the maximum number is 15. In such cases, the maximum capital allocation may be up to Rs. 250 crores. However, this is subject to a capital allocation of shares worth Rs. 5 crores for each anchor investor.