Election, market uncertainty looms large over IPOs worth $2 billion

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Election and market uncertainties are looming large over companies whose regulatory approvals to launch their initial public offerings (IPOs) expire before May 2019.  

A dozen companies - planning a cumulative fundraiser of close to $2 billion - have market regulator Securities and Exchange Board of India’s (Sebi’) nod in place. These companies have not been able to launch their IPOs this year due to prevailing volatile market conditions and the uncertainty around the state and general elections, said bankers.

If these companies do not launch their offerings before May 2019, their approvals would lapse.
The Sebi approval for IPOs is valid for a period of one year, after which companies have to re-file their offer documents for fresh approval.

According to reports, the Anil Ambani-led Reliance General Insurance, whose approval lapses later this week, planned to re-file with the Sebi. The company had obtained the Sebi’s approval on November 29, 2017. However, it failed to launch its IPO.

The volatility in the secondary markets and the liquidity crunch, following the Infrastructure Leasing & Financial Services (IL&FS) crisis, have further compounded the problems of these firms waiting to tap the capital markets, said bankers. 

The correction in the markets, especially in mid-cap stocks, has deterred promoters and private equity firms looking to raise funds.  The benchmark Sensex and Nifty indices fell by as much as 15 per cent in September and October. The broader-market MidCap and SmallCap indices have been through a turbulent phase for almost the entire year. Most of the IPOs waiting in the wings belong to the mid-cap and small-cap category.

“In the current market, there is a lingering disquiet about valuations. Many of these companies had filed when the valuations were higher. Also, weak foreign flows have affected the way people are looking at issuances. Both IPOs and fundraising by listed companies are affected by the same phenomena. I think the hope remains that once the state election results are out and new foreign institutional investor allocations are made, some of these issues - where the valuations are not that big a challenge - will go through,” said  Munish Aggarwal, director-capital markets, Equirus Capital. 

The problems in the IPO market worsened with the crisis in the non-banking financial company sector, which were triggered by defaults and downgrades at the IL&FS in September. The stocks of all the three companies making their stock market debut in September fell on their listing date and have since clocked negative returns.

Market participants said the events that unfolded in the past few months have made both high net worth individuals and retail investors wary of the market.

However, companies continue to file draft red herring prospectuses (DRHPs) with the market regulator. Over 71 companies had filed DRHPs in 2018, with around 18 of them filing since September when the secondary markets became volatile. 

Market participants said the companies are waiting for the December 11 results of the upcoming state Assembly polls and for some respite in the mid-cap segment.

“We have not seen IPOs happening for a couple of months because of market conditions, especially in the mid-cap segment. The companies are waiting for the sentiment to improve for the mid-caps,” said Ajay Saraf, executive director, ICICI Securities.

Some companies are letting the Sebi nod lapse and planning to re-file their offer documents. Market participants said the approval is much faster when a company re-submits its draft prospectus.

“It is much faster because most of what needs to be examined has already been vetted. It is much more like an update to the offer document. The process remains the same. But since the Sebi has already checked a lot of the things, the approval happens faster,” said Aggarwal.

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