IPO plans go sour for many firms

Nearly half of the offer documents remained on paper in the last two years

Nearly half of the companies that have filed documents with the Securities and Exchange Board of India (Sebi) for initial public offerings (IPOs) during the past two years are yet to hit the market.

Market sources cite several reasons, including change in business plans, lack of government guidelines on foreign equity participation in certain sectors, observations by the regulator and other resource-raising options like private equity funding, for the phenomenon.

"It is already reported that Sebi faces a severe shortage of staff. This could also be a reason for the delay," said an investment banker.

Out of the nearly 325 companies that have filed an offer documents with the regulator, only 176 IPOs have hit the market in the past two years, according to a data available.

Sources said that some of the IPOs like Reliance Power have been delayed on clarifications sought by the regulator on certain issues, while others like the Multi Commodity Exchange (MCX) "� which filed its draft document on March 2006 "� also ran into trouble due to no clear-cut rules on Foreign Direct Investment stipulations in commodity exchanges.

Some of the mega issues that are awaiting the go-ahead include Gammon Infrastructure (filed in March 2006) and EMAAR MGF (September 2007).

Public sector undertaking National Hydroelectric Power Corp (April 2007), according to reports, are stuck due to non-compliance of the Clause-49 rules, which requires stipulated number of independent directors on board of companies, among other things.

At least 200 others companies including some of the mega issues like Coal India Ltd. (issue size nearly Rs 3000 crore), Gujarat State Petroleum Corp, (Rs 6000 crore) and UTI AMC (Rs 4,000 crore) are slated to file their offer documents next year.

A Sebi official said the regulator was not the authority to clear the draft offer document filed by companies for public/rights issues, and it only gives observations on the disclosures in the draft prospectus to enable the investors to make an informed investment decision in the issue.

On receiving the draft prospectus, Sebi scrutinizes the disclosures made therein as to whether the disclosures are as per the Sebi (Disclosure and Investor Protection) Guidelines.

Many times, the draft prospectus does not contain the appropriate disclosures as required or certain complaints are received etc., for which Sebi has to seek clarifications from the merchant bankers handling the issue. On receipt of clarifications/ explanations from the merchant bankers, the issue is processed further.

Companies are mandated to complete their IPOs within 90 days of getting the final go ahead from Sebi or 180 days after filing the audited financial results, whichever is earlier.

If they fail to hit the market before this time schedule, then they have to go through the entire process all over again.

This includes filing the prospectus, getting clearances from stock exchanges and replying to Sebi observations.