Net offer to public
Also written Net offer
The offer of specified securities to the public excluding reserved portions (such as for employees) and any securities subscribed by the promoter group — the pool that is split among QIBs, NIIs and retail.
In plain language
An issue of Rs 330 crore is rarely one undivided pool. Part may be reserved for the issuer's employees, part for shareholders of its listed parent or subsidiary, and part may be subscribed by the promoter group. What is left — the part genuinely open to the general public — is the net offer to public.
The distinction matters because almost every allocation percentage in the ICDR Regulations is a percentage of the net offer, not of the issue size: the retail share, the NII share, the QIB share, the 75% QIB floor for loss-making issuers and the 1% rounding allowance. Get the base wrong and every number after it is wrong.
How it works
Definition (Chapter 4). "Net offer to public" means an offer of specified securities to the public but does not include reservations made for certain investor categories, nor securities, if any, to be subscribed by the promoter group. It must comply with Rule 19(2)(b) of the SCRR.
The Rule 19(2)(b) floor (Chapter 2). The minimum offer and allotment to the public depends on post-issue capital calculated at the offer price:
| Post-issue capital at offer price | Minimum public offer |
|---|---|
| up to Rs 1,600 crore | 25% |
| above Rs 1,600 crore, up to Rs 4,000 crore | the percentage equal to Rs 400 crore; reach 25% public within 3 years |
| above Rs 4,000 crore, up to Rs 1 lakh crore | 10%; reach 25% within 3 years |
| above Rs 1 lakh crore | the percentage equal to Rs 5,000 crore, and at least 5%; reach 10% within 2 years and 25% within 5 years |
Reservations sit outside it (Chapter 6). Reservations on a competitive basis come out of the issue size (excluding promoters' contribution), for employees and for shareholders (other than promoters and promoter group) of listed subsidiaries or listed promoter companies:
- employee reservation not more than 5% of post-issue capital, allotment per employee up to Rs 2 lakh (up to Rs 5 lakh if the employee portion is under-subscribed);
- shareholder reservation not more than 10% of the issue size;
- no reservation for the lead managers, registrar, syndicate members or their promoters, directors, employees or group/associate companies;
- unsubscribed reserved portions move first between reserved categories, then into the net offer; if the net offer is under-subscribed, spill-over from reserved categories is permitted.
How the net offer is split (Chapter 5).
| Book-built issue | Individual / retail | Non-institutional | QIBs |
|---|---|---|---|
| Under reg. 6(1) | not less than 35% | not less than 15% (⅓ for Rs 2–10 lakh applications, ⅔ above Rs 10 lakh) | not more than 50% (5% of it to mutual funds; up to 60% to anchors) |
| Under reg. 6(2) | not more than 10% | not more than 15% | not less than 75% |
In a fixed-price issue, at least 50% of the net offer goes to retail individual investors. Retail investors (and eligible employees and retail shareholders) may be offered a price not lower by more than 10% than the price at which the net offer is made to others, excluding anchors. In an oversubscribed issue, up to 1% of the net offer may be allotted extra to make allotments in minimum lots.
A worked example
Illustrative figures. An issuer will have 3 crore shares after its book-built IPO at Rs 400, so post-issue capital at the offer price is Rs 1,200 crore — the 25% band.
Minimum public offer (Rule 19(2)(b)(i)) = 25% × 1,200 = Rs 300 crore
The issue is structured as:
| Component | Rupees | Test | Passes? |
|---|---|---|---|
| Employee reservation | Rs 10 crore | ≤ 5% of post-issue capital (15 lakh shares ≈ Rs 60 crore) | Yes |
| Shareholder reservation | Rs 20 crore | ≤ 10% of issue size (Rs 33 crore) | Yes |
| Net offer to public | Rs 300 crore | ≥ Rs 300 crore | Yes |
| Issue size | Rs 330 crore |
Splitting the net offer under regulation 6(1):
| Category | Rule | Amount |
|---|---|---|
| Individual investors | ≥ 35% | Rs 105 crore |
| NIIs | ≥ 15% | Rs 45 crore — Rs 15 crore (Rs 2–10 lakh) + Rs 30 crore (above Rs 10 lakh) |
| QIBs | ≤ 50% | Rs 150 crore — Rs 7.5 crore for mutual funds; up to Rs 90 crore to anchors |
Two more numbers off the same base. A retail discount can take the retail price no lower than Rs 360 (10% below Rs 400). And with the net offer of Rs 300 crore ÷ Rs 400 = 75 lakh shares, rounding-off allotments in an oversubscribed book may add up to 75,000 shares (1%).
The common error. Computing the 35% retail share on the Rs 330 crore issue size gives Rs 115.5 crore — a Rs 10.5 crore overstatement that comes entirely from including the reservations.
Why NISM asks about it
Chapter 4 (Issue Management – Important Terms) defines the term and ties it to Rule 19(2)(b) in Chapter 2; Chapter 5 (Issue Management – Process and Underwriting), the heaviest chapter at 18%, applies the allocation percentages to it; Chapter 6 sets the reservations that sit outside it.
Allocation arithmetic on the net offer, and the direction of each limit ("not less than" for retail and NII under 6(1), "not more than" for QIBs), is standard exam material.
Common exam traps
- Allocation percentages apply to the net offer, not the issue size.
- Promoter group subscriptions are excluded as well as reservations.
- Under 6(1) QIBs get "not more than 50%"; under 6(2) "not less than 75%". Retail flips from "not less than 35%" to "not more than 10%".
- The employee cap is 5% of post-issue capital; the shareholder cap is 10% of issue size. Different bases.
- Reserved-category leftovers go to other reserved categories first, then to the net offer.
- The retail discount is measured against the price to the net offer (excluding anchors), and anchors may not be offered a lower price than other applicants.
- Rule 19(2)(b) is measured on post-issue capital at the offer price — effectively post-issue market value — not on face value.
Check yourself
1.Which statement about allotment and refund in a public issue is correct?
- a)Allotment may be made to any number of allottees provided the issue is fully subscribed
- b)No allotment may be made if prospective allottees number less than one thousand, over-allotment is limited to one percent of the net offer for rounding into minimum lots, and delayed allotment or refund attracts fifteen percent per annum interest
- c)Over-allotment of up to fifteen percent is permitted for rounding purposes
- d)Refunds may be made by cheque at the issuer's convenience
Show the answer
Answer: (b) No allotment may be made if prospective allottees number less than one thousand, over-allotment is limited to one percent of the net offer for rounding into minimum lots, and delayed allotment or refund attracts fifteen percent per annum interest
The issuer shall not make an allotment pursuant to a public issue if the number of prospective allottees is less than one thousand.
The issuer shall not make any allotment in excess of the specified securities offered through the offer document except in case of oversubscription for the purpose of rounding off to make allotment, in consultation with the designated stock exchange — and then an allotment of not more than one percent of the net offer to public may be made for the purpose of making allotment in minimum lots.
Where the specified securities are not allotted and/or application monies are not refunded or unblocked within the period stipulated..., the issuer shall undertake to pay interest at the rate of fifteen percent per annum to the investors.
Option C borrows the green shoe figure. Fifteen percent is the maximum excess allotment under a green shoe option — a post-listing price stabilising mechanism — not the rounding allowance, which is one percent.
Option D ignores the electronic requirement: the lead manager(s) shall ensure that the allotment, credit of dematerialised securities and refund or unblocking of application monies, as may be applicable, are done electronically.
The allotment floors by category: the allotment of specified securities to each retail individual investor shall not be less than the minimum bid lot, and the allotment... to each non-institutional investor shall not be less than the minimum application size — with the remainder in each case allotted on a proportionate basis.
Everyone else is proportionate: the allotment of specified securities to applicants other than to the retail individual investors, non-institutional investors and anchor investors shall be on a proportionate basis within the respective investor categories and the number of securities allotted shall be rounded off to the nearest integer.
With a reservation cap: the value allotted under a reservation shall not exceed two lakhs rupees for retail investors or up to five lakhs rupees for eligible employees.
And the basis is settled jointly: the authorised employees of the designated stock exchange, along with the lead manager(s) and registrars to the issue, shall ensure that the basis of allotment is finalised in a fair and proper manner.
Where this is taught
Free preparation for NISM Series IXRelated terms
- Anchor investorA qualified institutional buyer allotted shares a day before a book-built issue opens — at least Rs 10 crore on the main board or Rs 2 crore on the SME exchange — under a discretionary, locked-in allocation.
- Retail Individual InvestorUnder the SEBI ICDR Regulations, 2018, an individual investor who applies or bids for specified securities for a value of not more than Rs 2 lakh.
- Minimum subscriptionThe least an issue must raise to go ahead — at least 90% of the fresh issue offered through the offer document; if it is not received, all application money is refunded within four days of closure.
- Non-Institutional InvestorThe residual public-issue category for applicants who are neither retail individual investors nor qualified institutional buyers — in practice anyone bidding for more than Rs 2 lakh without being a QIB.
- Qualified Institutional BuyersThe closed list of institutional investors in the ICDR Regulations — SEBI-registered funds, non-individual FPIs, banks, insurers, large provident and pension funds — with special rights and limits in issues.
- Promoter groupThe promoter plus immediate relatives and the connected companies, HUFs and firms defined by 20% shareholding links — the circle whose holdings the ICDR Regulations treat together with the promoter's.
- DevolvementThe part of an under-subscribed issue that falls on an underwriter to take up — its underwriting commitment less the applications it procured — notified by the lead manager within ten days of closure.
- Designated Stock ExchangeThe one exchange, among those where an issuer seeks listing, that the issuer chooses to anchor the issue — holding the 1% security deposit and overseeing the basis of allotment with the lead manager and registrar.
- Registrar to an issueA SEBI-registered intermediary that, for an issuer, collects applications, keeps records of applications and money, and helps fix the basis of allotment and send out allotments and refunds.