The Securities and Exchange Board of India (Sebi) is planning ‘out of the box’ measures to revive the moribund primary market. The regulator, which sets norms and clears offer documents for Initial Public Offers (IPOs), is planning to directly meet the promoters or management of companies bound for the latter, to clear the air surrounding equity fund raising, a Sebi official said.
Fund-raising through IPOs plunged to a decadal low this year, with companies shelving their equity fund raising plans due to uncertain market conditions. Also, the filing of offer documents with Sebi, a precursor to launching an IPO, has taken a beating, signalling that sentiment might not improve in a hurry. “We are planning to reach out directly to potential issuers or promoters to clear the misconceptions regarding fund raising through IPOs. We want to understand the issues concerning them or preventing them from tapping the market,” said a Sebi official.
As a practice, Sebi rarely talks to issuers itself. All the communication takes place through the investment bankers a company appoints to manage its stake sale. Primary market experts said beside the weak market conditions, there could be concerns surrounding too much of regulatory obligations (see box) that could be putting off issuers, and it would be better if Sebi assuaged some of this.
“There are lot of companies ready to do an IPO but are not coming to the market. Sebi’s initiative could be to understand from them, get a new perspective on how they look at the market. It is entirely possible the issuers bring up some issue which is never highlighted,” said Prithvi Haldea, chairman and managing director, Prime Database, a primary market tracking firm. He added Sebi could only address issues under its purview. However, if an issuer raised any macro concern, it could make a reference to the ministry concerned.
Sebi had taken similar steps to help companies meet the 25 per cent minimum public shareholding (MPS) requirement norm within the deadline it had of June 3. The regulator had met listed companies directly to suggest measures for paring their excess promoter shareholding and even provided relaxation of certain norms, on a case by case basis.
“The initiative of meeting companies directly that we had taken during MPS was quite fruitful. We intend to do a repeat of that for IPOs,” the Sebi official added. IPO fund raising has declined to Rs 1,602 crore in 2013 as compared to Rs 6,938 crore raised in 2012, says Prime Database. Fund raising this calendar has been the lowest since 2003, when companies had raised about Rs 1,700 crore.
“The primary market is a function of the secondary market. There is a revival seen in the secondary market in recent months, so one can expect a gradual recovery in the primary market as well,” said Jagannadham Thunuguntla, chief strategist at SMC Global Securities.
“However, the Power Grid offering has shown there will always be demand for good companies at the right prices,” said Thunuguntla.
Sebi feels the moribund primary market needs a boost
- Not enough appetite for new paper
- Sebi approvals time consuming
- Safety net
- Sebi dictates IPO pricing
- There is plenty of capital waiting to be deployed at right valuations
- Sebi has set a fixed timeline for clearing IPO documents
- Safety net is only voluntary, to be exercised mostly at the discretion of the issuer
- Pricing left to the bankers, issuers.
- However, Sebi expects certain rationalisation