Newer Pricing Options in Public Offerings

A couple of months ago, SEBI permitted companies undertaking follow-on public offerings (FPOs) to price their shares freely above a floor price and on the basis of the price the bidders have quoted. However, retail investors would be allotted shares at the floor price. This was also in preparation for a slew of offerings by public sector undertakings (PSUs).

The Hindu Business Line reports that the PSUs, starting with NTPC Limited, may be adopting the ‘French auction’ model for their FPOs under this dispensation:

Under this alternative book building model, institutional buyers would be free to bid above a certain floor price and the allotment would be on price-priority basis and at differential prices.


About half of the 41.23 crore shares to be sold in the issue is reserved for the QIB (qualified institutional buyer) portion and would be allocated to investors based on the `higher the bid, higher the allocation’ basis. The `French auction’ model is likely to be replicated for the institutional portion of the upcoming Rural Electrification Corporation (REC) and mining major NMDC’s share sales as well.

… The highest bidders, in the descending order, will get preference based on the price bids they have placed for the shares. …

This is being implemented on the expectation that the French auction would lead to a more optimal price discovery.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.


  • It would be interesting to know your views regarding extension of auction facility to HNIs. My understanding is that HNIs often invest based on the advice given by their portfolio managers. Therefore, I believe it would be beneficial if the allotment at floor price is restricted to retail investors only.

  • There may be some merit in making this scheme available in the case of HNIs as well, for the reasons you mention. In some other jurisdictions, HNIs are treated as sophisticated investors, so long as their wealth (measured in various ways) is beyond defined thresholds.

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