Fate of 2014's first IPO sign of pain in primary market

Experts say revival could be some time away

Investors’ cold response to Loha Ispat’s initial public offering (IPO), the first such issue in 2014, underscores the pain in the domestic primary market. It is going through one of its driest spells in recent years. With only three IPOs since the start of 2013, excluding those of small and medium enterprises (SME), and the pipeline running dry, a revival in the primary market could be some time away, even as stock indices hit record levels every other day.

The Rs 200-crore IPO of steel manufacturer Loha Ispat, which closed on Tuesday, struggled to garner full subscription, despite lowering the issue price and extending the closing date. It was unclear whether the IPO managed to sail through, with the issue garnering only 78 per cent subscription as of 5 pm on Tuesday, provisional data on the stock exchanges showed. According to the Securities and Exchange Board of India (Sebi) norms, an IPO needs at least 90 per cent subscription for the issue to succeed.

“If we leave aside SME IPOs, the past year has been the worst in decades,” said Prithvi Haldea, chairman & managing director, Prime Database, an IPO tracking firm. “There are multiple reasons behind the poor primary market conditions, including a volatile macro and political situation. Launching an IPO needs a great amount of investor confidence, which has been lacking.”

Currently, less than five companies are awaiting Sebi approval to launch IPOs, while only a few have ready approvals in place to hit the market. “There is a lot of preparatory activity in the background but nobody is in a hurry to come out with an IPO. A substantial majority of companies would like to see more stability in the market and may look to see how the post-election scenario pans out before deciding on their plans,” said Gautam Gupte, director at Ambit Corporate Finance.

 

Experts say as in the past two years, IPOs could be few and far between until the macro economic situation improves and secondary market conditions remain stable.

“If there is a stable government in place and the secondary market continues to do well, we could see a steady stream of IPOs. A lot of companies with private equity (PE) investments want to come out with IPOs but are not able to do so due to a valuation mismatch,” said Haldea.

Gupte said PE players could play a role in setting the ball rolling. “Many IPOs which may come could be driven by PE exits... there is significant pressure on private equity players to exit investments, on account of the funds coming to the end of their lives. This can also be seen in the increasing number of secondary sales,” he said.