Institutional Placement Programme

The Institutional Placement Programme (IPP) is a structured method of equity share placement primarily designed for public sector undertakings (PSUs) and other listed companies in India to raise capital by offering shares exclusively to qualified institutional buyers (QIBs). It is a market-based mechanism introduced to promote transparency, compliance with public shareholding norms, and efficient capital mobilisation through institutional participation.

Background and Introduction

The Institutional Placement Programme was introduced by the Securities and Exchange Board of India (SEBI) in 2012. It was created as a means to help companies, especially government-owned enterprises, meet the Minimum Public Shareholding (MPS) requirement mandated under Rule 19A of the Securities Contracts (Regulation) Rules), 1957.
According to SEBI norms, all listed companies must maintain a minimum 25% public shareholding, while public sector companies must maintain at least 10%, later revised to 25%. Many PSUs held large portions of their equity with the government, making it difficult to comply with the MPS rule through traditional methods such as Follow-on Public Offers (FPOs) or Offer for Sale (OFS).
To address this, SEBI introduced the Institutional Placement Programme, allowing a simpler, faster, and less expensive mechanism for divesting government equity and increasing public participation through institutional investors.

Objectives of the Institutional Placement Programme

The main objectives of the IPP are as follows:

• Compliance with SEBI’s public shareholding norms for listed companies.
• Facilitation of equity divestment by promoters, particularly in PSUs.
• Efficient capital raising through institutional participation.
• Promotion of transparency and fairness in the allotment process.
• Encouragement of institutional investment in Indian capital markets.

Key Features and Mechanism

The Institutional Placement Programme operates under a well-defined framework governed by SEBI (Issue of Capital and Disclosure Requirements) Regulations. Its features include:

1. Eligible Issuers:
   • Listed companies that need to reduce promoter shareholding or raise additional funds.
   • Commonly used by public sector undertakings (PSUs) for government disinvestment.
2. Eligible Investors:
   • Only Qualified Institutional Buyers (QIBs) can participate.
   • QIBs include mutual funds, insurance companies, banks, pension funds, and foreign institutional investors.
   • Retail investors and non-institutional investors are not eligible under IPP.
3. Offer Size:
   • The minimum offer size is determined based on SEBI’s minimum public shareholding requirement.
   • Typically, the offer must ensure compliance with the prescribed public shareholding limit after completion.
4. Pricing of Shares:
   • Shares are issued at a price determined through book building or fixed pricing mechanisms.
   • The floor price must be disclosed, and final pricing is based on investor demand.
5. Allotment Process:
   • Shares are allotted only to QIBs on a proportionate basis.
   • No single investor can be allotted more than 25% of the total offer size.
   • Minimum of 25% of shares must be reserved for mutual funds and insurance companies collectively.
6. Lock-in Period:
   • Shares allotted under IPP are not subject to a lock-in period, making them tradable immediately after listing.
7. Mode of Execution:
   • The entire process is conducted through recognised stock exchanges, ensuring transparency and efficiency.
   • The issue must be completed within 12 months from the date of shareholder approval.

Comparison with Other Methods of Share Sale

The IPP offers a middle path between FPOs and OFS, combining regulatory flexibility with institutional confidence.

Advantages of the Institutional Placement Programme

• Efficiency: Enables quicker compliance with minimum public shareholding norms.
• Transparency: Conducted through recognised exchanges with clear bidding mechanisms.
• Cost-Effective: Less documentation and advertising compared to FPOs.
• Institutional Strength: Attracts stable, long-term investors such as mutual funds and pension funds.
• Market Stability: Minimises retail speculation and price volatility.
• Government Disinvestment Tool: Serves as a reliable method for the government to reduce its stake in PSUs.

Limitations of the Programme

• Restricted Participation: Only QIBs can participate, excluding retail and small investors.
• Limited Liquidity Impact: Since allotment is restricted to institutions, the wider market may not experience significant trading activity.
• Dependent on Market Conditions: Investor appetite is influenced by overall market performance and sector outlook.
• Unsuitable for Smaller Firms: Primarily designed for large-cap or PSU entities with institutional appeal.

Examples of Institutional Placement in Practice

Several major public sector undertakings and listed companies have successfully used IPP to comply with SEBI’s shareholding norms or raise capital. Examples include:

• Steel Authority of India Limited (SAIL) – One of the earliest PSUs to use IPP for government stake dilution.
• Oil India Limited (OIL) and Power Finance Corporation (PFC) – Conducted IPPs to increase public float.
• National Buildings Construction Corporation (NBCC) – Utilised IPP to meet minimum public shareholding requirements.

These cases demonstrated that IPP could be a viable and transparent route for large-scale institutional disinvestment.

Regulatory and Policy Framework

The Institutional Placement Programme operates under the following legal and regulatory provisions:

• SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended.
• Securities Contracts (Regulation) Rules, 1957, particularly Rule 19A concerning public shareholding.
• Companies Act, 2013 provisions relating to share capital and allotment.
• Oversight by stock exchanges such as NSE and BSE to ensure compliance and disclosure integrity.