Sterling & Wilson, Spandana slash IPO size amid choppy market conditions

To hit the market next week, Sterling & Wilson and Spandana have cut their issue size by a third

Shapoorji Pallonji Group company Sterling & Wilson Solar and microfinance company Spandana Sphoorty Financial Services have cut the size of their initial public offering (IPO) by a third to realign with market conditions, said sources in the know.

To hit the market next week, the two IPOs will raise a cumulative Rs 4,300 crore, down from nearly Rs 6,000 crore planned earlier.

The IPO of Sterling & Wilson Solar, a solar power engineering, procurement, and construction company, is entirely an offer for sale (OFS). The issue size has been cut from Rs 4,500 crore to Rs 3,150 crore.

Meanwhile, Spandana Sphoorty Financial Services has retained the fresh issue component of Rs 400 crore but cut the OFS component from Rs 1,200 crore to Rs 800 crore, with private equity firm Kedaara Capital deciding to offload less.

“To align with the challenging market conditions, companies have to scale back their valuation expectations. Both Sterling and Spandana have cut the OFS component after some investors didn’t want to sell more shares at reduced valuations,” said an investment banker in the know.

The public offerings are coming at a time when equity markets have hit a downward slope. In July, the benchmark Nifty declined 5.7 per cent, while the broader market Nifty MidCap 100 and SmallCap 100 declined 8.2 and 11 per cent, respectively.

Investment bankers said there is a lot more comfort from investors at reduced valuations despite weak sentiment in the secondary market. There is healthy demand from institutional investors, including foreign portfolio investors for these IPOs, they said.

A recent rule change by market regulator Securities and Exchange Board of India (Sebi) has allowed these companies to alter their IPO size without having to refile their IPO document. Earlier, companies had to refile their IPO document to Sebi to tweak the issue size by more than 20 per cent.

In January, Sebi allowed issuers to change the OFS component of an IPO by as much as 50 per cent.

Investment bankers say the rule change has come in handy for a lot companies looking to hit the markets in these challenging market conditions.

Another rule change by Sebi, however, is proving to be an irritant for companies that are launching their IPOs. Starting with the IPO of Affle India, which closed on Wednesday, the market regulator has made electronic payments compulsory for retail investors.

Investment bankers say the small investors have not entirely warmed up to make payments through so-called Unified Payments Interface (UPI), mandated for IPOs. Most bankers are expecting muted response from retail investors due to teething issues with UPI-based applications.

Sources said a group of investment bankers have sought a meeting with Sebi to discuss better implementation of UPI payments for IPOs.

Falling appetite

• Spandana, Sterling to launch IPOs next week

• Both firms have cut their issue size

• Move to align with tough market conditions

• Markets have witnessed huge drop in July

• Introduction of UPI-based payments for IPOs to affect retail demand