Economic slowdown impact: Over 20 IPOs stare at SEBI approval lapses

Slowdown, volatile market loom over maiden offerings worth Rs 16,500 crore

The decline in secondary markets and economic downturn are likely to play spoilsport for over 20 companies looking to launch their initial public offerings (IPOs).

According to data by PRIME Database, the approval granted by markets regulator Securities and Exchange Board of India (Sebi) to nearly two dozen companies is set to expire over the next few weeks. Investment banking sources say that barring a couple, most companies won’t be able to enter the markets, given the challenging environment.

These were looking to raise a cumulative Rs 16,500 crore. Sebi’s approval has one-year validity. If a company fails to launch its IPO during that period, it has to re-file its offer document and obtain fresh approval.

People in the know said state-owned Mazgaon Dock, whose approval lapses later this week, plans to re-file with the regulator. The company had obtained approval on August 10, 2018.

Volatility in secondary markets and liquidity crunch, following the Budget, have compounded the woes of firms waiting to tap the capital markets.

The correction, especially in mid- and small-cap stocks, means promoters have to reduce their valuations, which promoters or private equity (PE) are not comfortable with, say bankers.

The Sensex and Nifty fell 9 and 10 per cent, respectively, from their all-time highs in March. The mid- and small-cap indices have tumbled even more, and are trading near multi-year lows. Most of the IPOs waiting belong to the mid-cap and small-cap categories.

“In many cases, the final call to price the IPO is taken by PE investors. They are not getting the valuations they desire. Second, the earnings of many firms have not been good because of the slowdown last year. This is not exciting enough to attract investors. Hence, they are waiting for a better time when they can get buyers at a reasonable valuation,” said Prithvi Haldea, founder of PRIME Database.

Market players said the economic slowdown has hit corporate earnings. Expectations from investors on IPO discounts have widened, due to the volatile conditions. The market has deteriorated since these companies filed for IPOs 12-15 months ago.

The problems in the IPO market coincided with the crisis in the NBFC sector, which was triggered by defaults and downgrades at IL&FS in September last year.

“Based on current market conditions, firms planning to raise fresh money through IPOs, or promoters seeking to monetise their holdings will have to either re-look at valuations or reduce the size of the issue anywhere between 25 and 35 per cent,” said Rajendra Naik, managing director (investment banking), Centrum Capital.

The two IPOs to have hit the market this week had to reduce their issue size by a third.

Market participants said the events that unfolded over the past year made both high networth individuals (HNIs) and retail investors wary.