Sebi concessions fail to lift IPO market, firms shelve listing plans

Investment bankers say many have shelved listing plans; appetite healthy for share sales in large listed firms

The initial public offering (IPO) market is expected to remain moribund despite several relaxations by the markets regulator, say experts.

The IPO market freeze, according to investment bankers, could extend untill the end of this year, even as there is healthy appetite for shares in listed companies with leadership position in their sectors which led to some large firms raking in billions of dollars through the route.

Last month, the Securities and Exchange Board of India (Sebi) gave a six-month breather to IPOs whose validity expires between March 1 and September 30. The move is set to benefit about a dozen companies, that were cumulatively looking to raise about Rs 15,000 crore. These companies include Shriram Properties, Bajaj Energy, Angel Broking, and Indian Renewable Energy Development Agency.

Listing plans shelved

Investment bankers say while the extension is a welcome move, many companies have already decided to shelve their IPO plans because of the deteriorating market conditions.

“The IPO market generally tracks the secondary markets. Untill the secondary markets come back strongly, we will see a slowdown in IPO fundraising. But if the secondary markets move positively in the next couple of months, some of the companies can potentially benefit on account of the Sebi relaxation on IPO validity,” said Jibi Jacob, head of equity capital markets, Edelweiss Financial Services.

The benchmark indices came off as much as 40 per cent from their peak in January before recouping the bulk of the losses. Currently, the benchmark Sensex is down 26 per cent on a year-to-date basis.

Pranav Haldea, managing director, Prime database, said: “Everything depends on how long this lockdown continues. Even if the businesses resume by the end of May, it will still be at least a few months before issuers consider coming to the market,” Haldea said.

Bigger challenges

Market players flag bigger challenges for those wanting to do an IPO.

“The valuation for the entire market has come down. So companies and promoters who had filed their documents last year will have to lower their expectations. As a result, many would prefer to wait than selling at depressed valuations,” says an investment banker.

Bankers say 2020 could be a washout year for the IPO market. So far in 2020, only one company — SBI Cards and Payment Services — has gone public. The company’s stock price currently quotes at over 30 per cent below the issue price, weighing on the sentiment of regular IPO investors.

Listed companies with a good track record will, however, be able to tap the markets with rights, qualified institutional placements and other fundraising avenues, they say.

“Investors will be sceptical about investing in a company where public information is limited. One has to see more fundraising in the secondary market space to gauge investor interest. If secondary issues continue to be well-received, there is a fair chance that the IPO market, too, could pick up,” said Pranjal Srivastava, independent capital markets professional.

Wait-and-watch approach

Experts say one needs to assess the impact of the lockdown on companies that are waiting in the wings to launch their IPOs.

“There has been a material change in the business and financials of many companies because of the lockdown. There are doubts if some of the companies will be able to bounce back to their pre-Covid levels. It is highly doubtful if such companies will have any takers for their IPO,” said the banker quoted earlier. Sebi has also allowed companies to change the fresh issue component of IPOs by up to 50 per cent without having to refile the draft offer prospectus.

“I don’t think companies will do an IPO just because of the concessions. As the majority of IPOs are offers for sale, there will be a bit of wait and watch for the climate to improve,” said Jacob. Some believe there will be takers at discounted valuations.

“In any bearish market, there will be some issuers who would be willing to accept a lower valuation. Either because they need the money or they want to give an exit to investors. And there will be some promoters who feel the valuations are low and would prefer to wait,” said Haldea.