The ASBA process

Thu Oct 16, 2008 5:37pm IST

The Bombay Stock Exchange (BSE) building is seen in this May 22, 2006 file photo. REUTERS/Punit Paranjpe

The Bombay Stock Exchange (BSE) building is seen in this May 22, 2006 file photo.

Credit: Reuters/Punit Paranjpe

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Securities Exchange Board of India's (SEBI) all new Application Support Blocked Amount (ASBA) process for initial public offering was launched in September 2008 with 20 Microns, producer of white minerals being the pioneer.

The 20 Microns' initial public offering (IPO) hit the markets on Sep. 8, 2008 and closed on Sep.11 2008. The offering was issued at a price of Rs 55 a share against the price band of Rs 50-Rs 55 a share. A total of 18,663,800 bids were received from the share offering of 435,063 leading to a subscription rate of upto 4.29 times.

Out of 25,003 applications received from retail individual investors from the initial public offering (IPO) of 20 Microns, 2,426 applications (9.70%) were received through ASBA.

Cannot figure out what is ASBA?

Application Support Blocked Amount (ASBA) is Bombay Stock Exchange's (BSE) initiative to provide of constantly providing innovative and investor friendly services to obviate the need for refunds.

The ASBA process which has been successfully tested with eleven Self certified Syndicated banks, ensures that the investor’s funds leave the bank account only upon allocation of shares in public issues.

In other words, amount equivalent to shares applied for by the investors is retained only till the IPO process and would be debited from the account only on allotment of shares.

Using this interface the banks, participating in the IPO process are able to upload the bids with respect to their customers, into the electronic book of BSE. The interface facilitates not only the controlling branch but also the designated branches of the banks to directly upload the bids into the electronic book at BSE.

Also, by applying this process, the time length between the issue closing and its listing reduces considerably allowing investors to participate in other IPOs within the time range as well.

Let the numbers speak for themselves!

Tune on the time-turner and race back to early January, 2008 when Sensex at 21,000 levels, was in raking investors from all corners.

This was the time of two mega IPOs, Kishore Biyani led Future Capital Holdings, part of Future Group that subscribed and Anil Ambani led Reliance Power.

Being unconventional, our calculations would revolve around Future Capital Holdings.

The Initial Public Offering (IPO) that preceded Anil-Ambani’s mega IPO hit the markets on Jan.11, 2008 with an offering of upto 6.42 million equity shares and a price band of Rs 705 – Rs 765 a share.

The issue price was capped at Rs 765 a share and 30% of the offering that is upto 1.93 million equity shares were reserved for retail investors. The same was oversubscribed upto 55 times. This means 105.93 million shares were subscribed by retail investors itself!

Since ASBA is applicable only to retail investors at a cut-off price, let’s assume all 30% of the retail investors applied for the shares through ASBA at the cut-off price of Rs 765 a share.

At a cut-off price of Rs 765 a share, the total amount collected from retail investors itself would be a whopping figure of Rs 81,036.45 million

The allotment of shares happened on Feb. 1, 2008. Thus the money was held with the banks for approximately 15 days after the closing date of issue on Jan. 16, 2008. Now during this period, if the money was invested in some way by banks on behalf of the company at a meager interest rate of 5% p.a, the bank could easily make upto Rs 166.52# million out of the retailers pocket.

# 81,036.45* 0.05*(15/365)

At this time, if ASBA was available, the same amount (Rs 166.52 million) could be invested elsewhere or even in the mega ADAG-led (Anil Dhirubhai Ambani Group) IPO.

Apart from IPO`s, investors can also opt for ASBA process in rights issue. The company to take the initiative in this case is Tata Motors.

Caution!

-Investors are not allowed to revise or withdraw their bids in ASBA

-Incase of rights issue, the money would be debited to the issuer’s account if the issue has been subscribed more than 90.

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