Why did the Star Health IPO fail to get fully subscribed and what happens to the IPO now?

The Rs.7,249 crore IPO of Star Health & Allied Insurance comprised of a fresh issue of Rs.2,000 crore and an OFS of Rs.5,249 crore. The overall response was a disappointment as it only got bids for 355.85 lakh shares against the total 449.09 lakh shares available on offer in the IPO. In short, the subscription was just 0.79 or 79% of the IPO. This is despite the successful anchor placement and the backing of ace investor Rakesh Jhunjhunwala.

It may be recollected that Star Health had done an anchor placement of 3,57,45,901 shares at Rs.900, which is the upper price band to raise Rs.3,217 crore. However, against the balance Rs.4,032 crore to be raised via IPO, the company could only collect Rs.3,193 crore across the 3 segments of QIBs, retail and HNIs. This left the issue with a shortfall of Rs.839 crore despite the retail and QIB portion getting just about fully subscribed.

The problem was in the HNI component where against the available quota of 119.15 lakh shares, Star Health got applications for just 22.76 lakh shares. That is an effective subscription ratio of just about 0.19 times or 19%. Corporate applications and funded applications were not too enthusiastic. Also, the QIB and the retail segments were just about subscribed so there was little room for accommodating the HNI shortfall.

The company had the option of cancelling the IPO or reducing the OFS portion. It opted to reduce the OFS size by Rs.839 crore, which is permitted since the fresh portion was fully taken up and QIBs had crossed the threshold. Also, Star had met the condition of minimum 10% dilution. Thus Star Health became only the second IPO since 2018, after ICICI Securities, to settle for a lower IPO collection.