Hero Motors’ prospectus has conflicting IPO allocation rules

Hero Motors’ prospectus sets out conflicting IPO allocation rules for retail investors: 5% on page 515, 3% in a page 517 note and 35% on page 519. The cited pages also differ on an anchor-investor reservation and on the lower threshold for one non-institutional bidding band.

Why does Hero Motors’ prospectus show three retail quotas?

Hero Motors’ prospectus gives three different minimum allocations for retail individual bidders in provisions describing the same book-built offer. The offer-structure table on page 515 says not less than 5% of the offer, or the offer less allocations to qualified institutional buyers and non-institutional bidders, will be available to retail individual bidders. The same table caps a retail bid amount at Rs 2 lakh.

A note on page 517 instead says not less than 3% of the offer will be available for allocation to retail investors, while retaining the stated 15% minimum for non-institutional bidders. The book-building procedure on page 519 gives a third figure: not less than 35% of the offer shall be available to retail individual bidders, subject to valid bids at or above the offer price. The difference between the 5% table disclosure and the 35% procedure disclosure is 30 percentage points.

What do the conflicting IPO allocation rules change?

Hero Motors’ conflicting IPO allocation rules leave no single internally consistent statement of the retail portion in the supplied pages. Page 515 describes an offer of up to Rs 1,000 crore, comprising a fresh issue of up to Rs 600 crore and an offer for sale of up to Rs 400 crore. The number of equity shares, offer price and post-offer share-capital percentage remain shown as placeholders.

Hero Motors uses three main investor categories: qualified institutional buyers, or QIBs; non-institutional bidders; and retail individual bidders, or RIBs. The page 515 table assigns not more than 50% of the offer to QIBs and not less than 15% to non-institutional bidders, alongside its 5% retail figure. Page 519 repeats the 50% QIB ceiling and 15% non-institutional minimum but pairs them with a 35% retail minimum.

Hero Motors also permits spill-over in specified circumstances, but that process does not identify which starting retail allocation applies. Pages 514, 517 and 519 state that under-subscription in the retail or non-institutional portion may be met with shares from other categories or a combination of categories, at the company’s discretion in consultation with the book running lead managers and the designated stock exchange. Under-subscription in the QIB portion cannot be met through spill-over from other categories.

Where do Hero Motors’ anchor-investor reservations differ?

Hero Motors’ prospectus gives two different percentages for life insurance companies and pension funds within a stated anchor-investor reservation. The page 515 table says 40% of the anchor investor portion will be reserved, with 33.33% for domestic mutual funds and 6.67% for life insurance companies and pension funds. Those two components total 40% of the anchor investor portion.

Note (i) on page 517 retains the 40% reservation and the 33.33% domestic-mutual-fund component, but states 66.67% for life insurance companies and pension funds. The two stated components in that note total 100%, rather than the 40% reservation described in the same passage. The note also provides that under-subscription by life insurers and pension funds may be allocated to domestic mutual funds, subject to valid bids at or above the anchor investor allocation price.

Hero Motors’ page 519 book-building procedure returns to the 6.67% figure for life insurance companies and pension funds, alongside the 33.33% domestic-mutual-fund figure. It says up to 60% of the QIB portion may be allocated to anchor investors on a discretionary basis under the Securities and Exchange Board of India Issue of Capital and Disclosure Requirements Regulations, or SEBI ICDR Regulations. The 6.67% figure therefore appears in two passages, while 66.67% appears in the page 517 note.

How do Hero Motors’ non-institutional bid bands conflict?

Hero Motors’ page 515 table describes a non-institutional bid range whose stated lower boundary exceeds its upper boundary. It says one-third of the non-institutional portion will be available for bidders with a bid size of more than Rs 2.02 crore and up to Rs 10 lakh. A bid cannot simultaneously exceed Rs 2.02 crore and be no more than Rs 10 lakh under the printed range.

Pages 516 and 519 set out a different first sub-category: applications exceeding Rs 2 lakh and up to Rs 10 lakh. They assign two-thirds of the non-institutional portion to bids above Rs 10 lakh, while one-third remains assigned to the Rs 2 lakh-to-Rs 10 lakh band. Both passages allow an unsubscribed portion in either sub-category to be allocated to bidders in the other sub-category in accordance with the SEBI ICDR Regulations.

The numerical difference is not only a wording change. The Rs 2.02 crore threshold in the page 515 table is 101 times the Rs 2 lakh lower threshold stated on pages 516 and 519. Page 517 also refers to non-institutional bidders as NIBs and states a minimum non-institutional application size of Rs 2 lakh, which is consistent with the later Rs 2 lakh starting point rather than the page 515 figure.

Which terms are consistent across the cited pages?

Hero Motors consistently describes a maximum QIB allocation of 50% and a minimum non-institutional allocation of 15% in the relevant passages. The prospectus lists eligible QIBs as including public financial institutions, scheduled commercial banks, mutual funds, insurance companies and specified registered funds. It also states that 5% of the net QIB portion, meaning the QIB portion after anchor allocation, will be available proportionately to mutual funds only.

Hero Motors consistently says up to 60% of the QIB portion may be allocated to anchor investors, subject to valid bids. Page 517 says an anchor investor must make a minimum bid of Rs 10 crore and describes minimum allotments of Rs 25 crore in one stated allocation range and Rs 5 crore in another. These anchor terms make the conflicting 6.67% and 66.67% reservation figures relevant within a portion that may represent up to 60% of the QIB category.

Hero Motors also states that applications are processed only after the bid amount is blocked through the Applications Supported by Blocked Amount mechanism, or ASBA, or through the Unified Payments Interface mechanism where applicable. Page 519 provides compensation for delayed unblocking beyond two working days of Rs 100 per day or 15% per annum of the bid amount, whichever is higher. Those processing rules do not resolve which retail quota, anchor reservation or non-institutional threshold governs allocation.

Conclusion

Hero Motors’ supplied prospectus pages contain material internal differences in the stated allocation framework. Retail investors are assigned minimum portions of 3%, 5% or 35% depending on the passage; the life-insurer and pension-fund anchor reservation appears as both 6.67% and 66.67%; and the page 515 non-institutional band begins above Rs 2.02 crore but ends at Rs 10 lakh.

Hero Motors states that the offer will use the book-building process under the SEBI ICDR Regulations and that a price-band revision would extend the bid period by at least three additional working days, subject to a 10-working-day maximum. The next disclosure to watch is any revised prospectus, corrigendum or offer communication that states one aligned retail allocation, anchor reservation and non-institutional bidding range before applications are processed.