With Rs 300-bn IPOs yet to take off, Sebi pitches for correct pricing

Illustration: Ajay Mohanty

The capital markets regulator Sebi on Tuesday voiced concern over the slow pace of primary issues, despite a good market condition, and asked investment bankers to do more "diligence" on the pricing front to get investors in. 

Chairman Ajay Tyagi said Sebi has given go-ahead to initial public offers (IPOs) worth over Rs 600 billion in 2018, but many of them are yet to hit the street. Till end October, 24 companies raised Rs 309.59 billion through IPOs but most this been in the March quarter.  

Last year was the best in terms of IPO fundraising, as the IPO market jumped to an all-time record of Rs 671.4740 billion in fresh fundraising by over 120 companies, according to data from Prime Database. 

According to the same agency, over 40 companies have IPO approvals totalling over Rs 600 billion, but most are not in a hurry as secondary market is roiled. That apart some 30 more companies have filed the draft IPO papers with Sebi.

As of end October, 24 companies raised Rs 309.5907 billion through IPOs but the bulk of the activity was in the March quarter, wherein 14 firms raised Rs 185.917 billion.

"The IPOs are not taking place is something that's a cause of worry," he said speaking at an investment bankers' event, adding companies have found alternatives like preferential issues to raise money.

When asked if the issue is pricing, he asked i-bankers to do more "diligence" while setting a price that will be acceptable to both the issuers as well as investors. 

"Merchant bankers have a role to see that an issue is reasonably priced and which is acceptable to both issuers and investors," Tyagi said.

The Sebi chief seemed to suggest that domestic market conditions are better as compared to global peers, with firm macroeconomic fundamentals and said the rupee fall has also been arrested.

He expressed happiness at the way the small and medium enterprises' IPO platform has taken off, saying this fiscal has already seen Rs 15 billion being raised as against Rs 8 billion in the previous year.

For increasing investor interest in lower-rated corporate bonds, the government is set to fulfil its FY17 budget promise of having a credit enhancement fund, he said, adding the fund will have an initial corpus of Rs 5 billion and there is a need to look at expanding the fund size.

Tyagi said masala bonds has not picked up as much as we would have liked it to have because of taxation issues.

Tyagi said he is against forced listing of multinational companies on our exchanges, he said at the same time he would welcome a policy regime that encourages such companies to raise funds from our primary markets.

On divestment, where the government is badly trailing on the budget target of Rs 800 billion, Tyagi said Sebi and the divestment department are in touch for driving issuances.

He said the 30 state-run enterprises are yet to meet the mandatory 25 per cent public shareholding norm and once they hit the market, and once they meet that lower ceiling there will be more quality scrips for the investors look at.

Tyagi also said he is personally uncomfortable subsidising retail investors for better participation.

On the insider trading front, Tyagi said there is a need to do more as till date there has not been a single conviction in any of the probes it initiated. The regulator is also increasing its technological capabilities to check insider trading, he added.

Tyagi said the insurance watchdog Irdai has "some issues" with the stewardship code on investment disclosures by financial sector companies floated by Sebi at the Financial Stability and Development Council and added that the pension fund regulator Pfrda is agreeable on the idea.

Talking to reporters later, he said show cause notices have been issued to three credit rating agencies who had ratings on IL&FS and also revised the norms and guidelines governing their functioning. 


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