While the first month of this year has proved positive for secondary markets in equities, the primary market is in doldrums. Four companies slated to raise a combined Rs 700 crore have frozen their Initial Public Offer (IPO) plans.
The companies are Tara Jewels, Pride Hotels, Bitul Oil and Micromax. This comes after the Goodwill Hospital IPO was withdrawn by its promoters after poor investor response this month. Tara, Pride and Bitul had plans to raise between Rs 50 to Rs 125 crore each, while Micxomax was looking to raise at least Rs 400 crore. These companies had exceeded the time period for launching an IPO after observations on their offer documents by the Securities and Exchange Board of India (Sebi). Sebi observation on offer documents are valid for a year.
Last year, 25 companies, mostly in real estate and power sectors, had called off their IPOs due to a sluggish market. These 25 were together aiming to raise Rs 31,000 crore, for business expansion.
| IN LIMBO | |
| Company | Validity of Sebi* |
| Tara Jewels | 3-Jan |
| Pride Hotel | 12-Jan |
| Micromax Informatics | 13-Jan |
| Betul Oil | 18-Jan |
| Marck Biosciences | 1-Feb |
| Tara Health Foods | 8-Feb |
| *observation (last date) | |
According to market analysts, the current negative sentiment in the primary market towards small company IPOs may also have forced companies to stay away from equity issuance. A large number of investors, including major institutions, have shown disinterest towards small company IPOs, since the shares of 70 per cent of these listed in the past two years are trading below issue price. Also, market players suspect huge price manipulation in small company IPOs listed since 2010.
The Securities and Exch-ange Board of India (Sebi) had this month barred promoters of seven small companies for a role in either diverting IPO money for work other than stated in offer documents or other manipulative practices. Sebi has fined several entities for roles in price manipulation after IPO listing.
Further, Sebi has formed new norms for IPO launches. The stock of a company which raises below Rs 250 crore will be under a five per cent circuit filter. For companies raising more, the stock will be under a 20 per cent circuit breaker. This is to keep a check on price manipulation of IPOs on the first few days after listing.
A report from Jagann-adham Thunuguntla of SMC Capital says at least 10 other companies with valid Sebi approval in hand are left with just two months to launch an IPO. “Such companies include Joyalukkas India, Lokmat Media, Aravali Infrapower, VRL Logistics and Embassy Property Developers. The total amount these companies are expected to raise is Rs 4,210 crore,” said the report.
“If this slowdown in the IPO market continues, there may be significant impact on the fund raising abilities of Indian corporates. The trend will lead to panic in the minds of private equity funds, as they would be unable to exit from investments,” said Thunuguntala.
Meanwhile, the Financial Technologies-promoted Multi Commodity Exchange is likely to launch its IPO in February. The company is expected to raise Rs 800-1,000 crore. Also, according to media reports, Oil and Natural Gas Corporation will launch a follow-on public offer in March.