A gold loan company runs a public NCD issue with a base of Rs 100 crore and a Rs 400 crore green shoe, three series and four investor categories. Retail is three times subscribed. Work out allotments and the weighted cost of funds.

The full Rs 500 crore is raised: institutions get Rs 30 crore, non-institutional Rs 40 crore, high net worth Rs 150 crore and retail Rs 280 crore, 46.7% of each retail bid. The three under-filled categories leave Rs 80 crore, which moves to retail. The weighted coupon is about 9.45%, and with 1.5% of issue costs the all-in cost is about 10.09% a year. Reallocation, allotment basis and minimum subscription rules must be confirmed in current SEBI rules.

A public issue is split into buckets before anyone bids. Each category can receive up to its reservation; a category that bids less gets everything it asked for, and a category that bids more is cut back. Institutions, companies and high net worth together bid Rs 220 crore against Rs 300 crore reserved, so all three are filled in full and leave Rs 80 crore unused. It is like a wedding caterer who plates food by table: tables that eat less leave food that the busiest table can then share.

Retail's Rs 200 crore reservation plus the Rs 80 crore passed to it gives Rs 280 crore to share among Rs 600 crore of bids. Allotted in proportion, each retail applicant receives 46.7% of what it applied for, against 33.3% if the unused money had not been moved. Someone who applied for Rs 3 lakh gets about Rs 1.4 lakh. Many Indian public NCD issues instead allot by date of application, first come first served, with proportionate allotment only on the day the category fills; which basis applies is set out in the offer document, and the reader should confirm the current SEBI rules.

Weight each coupon by the money in it. High net worth and retail, Rs 430 crore of the Rs 500 crore, earn the extra 0.25%, and the series mix averages 3.20 years. The weighted coupon is 9.45%, and spreading 1.5% of issue costs, Rs 7.5 crore, over those years lifts the all-in cost to about 10.09% a year. The issue costs matter more than they look: on a three-year average life, 1.5% upfront is roughly half a point a year.

Four, all set by SEBI's rules for public debt issues and the offer document. The category reservations and whether unsubscribed portions can move between categories; the basis of allotment, proportionate or by date; the minimum subscription, usually a share of the base issue, below which the issue must be withdrawn; and the limit on how much oversubscription the green shoe can retain. Each has been revised over time, so the numbers in this case are illustrative, not current. The desk view: a gold lender with a loyal retail base can fill a large green shoe cheaply, but it pays for that base in a higher coupon and in distribution costs.