IPOs hit a results roadblock
Temporary pause in new issuances as companies rush to update their quarterly numbers
The initial public offering (IPO) market has come to temporary a standstill despite improvement in market liquidity and buoyancy in equities. Investment banking sources said a rule pertaining to disclosure of quarterly numbers has put several IPOs on hold. According to the regulatory framework, a company cannot launch an IPO if the quarterly results disclosed in the offer document are more than two quarters old.
Sources said most companies that are sitting on regulatory approvals had filed their offer document with the Securities and Exchange Board of India (Sebi) based on their December 2017 numbers. Companies that were unable to hit the market by August 10, will have to wait for at least six to eight weeks before they can tap the market, said an investment banker. The last maiden offering to hit the domestic market was by microfinance firm CreditAccess Grameen almost three weeks ago.
Industry players say the move has caught them on the wrong foot, as the market conditions are currently suited for the primary markets.
“It is an awkward situation, when the market is doing so well, we are witnessing good investor appetite but there are no issuers ready to hit the markets,” said an investment banker, asking not to be named.
In the past one month, the BSE500 index, which tracks the performance of top 500 listed stocks, has rallied more than 5 per cent amid supportive institutional flows.
Mutual funds (MFs) have pumped in nearly ~40 billion this month, while foreign institutional investments (FIIs), too, have been marginally positive. Bankers say the process of updating audited quarterly numbers takes at least four weeks.
Lodha Developers, Rail Vikas Nigam, GR Infraprojects and Reliance General Insurance are some of the large IPOs waiting to hit the market. Besides, there are two dozen more companies that have been sitting on Sebi approvals for IPOs. On a cumulative basis, these companies can raise as much as ~370 billion, as the data provided by Prime Database shows. To be sure, not all these companies will be able to come to the market for reasons such as valuations mismatch or substantial changes to the offer structure.
Investment bankers say they can see a bunch of IPOs after the second week of September if market conditions remain stable. Unlike last year, volatile market conditions have posed a challenge to bankers and issuers in 2018. A record ~671 billion was raised by 36 companies through IPOs in 2017. In comparison, only ~273 billion has been mopped up by 20 IPOs this year.
“Last year, we witnessed a secular bull market and investors who were very hungry for transactions; this year, investors are far more sceptical,” said Anuj Kapoor, head of investment banking, UBS India, in a recent interview.
In 2017, the benchmark indices had seen almost a oneway rally with participation of broader markets. The markets have been choppy this year, with select stocks leading the charge.
“What doesn’t help IPO markets is uncertainty or extreme volatility. That’s the environment we have lived through this year, making deal closures challenging. Therefore, the performance has been a mixed
bag,” Sunil Khaitan, India head, global capital markets, Bank of America Merrill Lynch, said recently.
Industry players say companies sitting on approvals will look to hit the markets before the state elections in December, which could be another source of volatility.