The last few weeks have been tough for companies contemplating initial public offerings (IPOs). The volatility in the stock markets has meant that promoters have been thinking twice about launching their IPOs in the current environment. For instance, companies like Acme Tele Power, Aishwarya Telecom, Gammon Infrastructure and Alkali Metals, whose plans for an IPO were cleared by the Securities and Exchange Board of India, have not announced the dates for the launch yet. Many see sense in holding their horses.
Says Deven Choksey, managing director, K R Choksey Securities, ?I am not surprised if those who were contemplating IPOs would be holding on to their plans at the moment. It?s a game of wait and watch. Most would want the sentiment to ease out a bit.?
The fact that like Emaar MGF, SVEC Constructions and Wockhardt Hospitals had to call off their IPOs despite a few others scraping through is not helping either. For instance, issues such as IRB Infrastructure, Tulsi Extrusions, Shriram EPC, Bang Overseas and OnMobile Global, which came just before the above three, were fully subscribed, even over-subscribed, notwith- standing the weak market sentiment following the steep fall in the benchmark BSE Sensex and NSE Nifty on January 21 and 22, 2008.
What worked for them was the fact that they were not large issues. Most of them were in the region of about Rs 50-1,000 crore in size. Their price bands were not steep either, which meant that despite a liquidity crunch, investors were willing to spare some money for these issues.
Some of them like Bangalore-based OnMobile Global have an interesting story to tell. Says Sandhya Gupta, head, mergers & acquisitions, strategy & investment at OnMobile Global, ?It was our fundamental growth story that pulled us through.? The Infosys-incubated company that provides voice and value-added services to telecom and media companies in 18 countries came out with a Rs 480-crore issue at a list price of Rs 440 per share.
She adds, ?The fact that our issue came right after the January 21 and 22 market mayhem did make our investment bankers a bit nervous. But I was confident that we would be able to pull through the phase.?
Some promoters attribute plain luck to the success of their issues. ?I think we were lucky,? says Venugopal Bang, chairman of Bang Overseas, a Mumbai-based textile company, which came out with a Rs 72.45-crore issue at a list price of Rs 207 per share.
Sanjay Kumar Taparia, director & chief executive officer of Tulsi Extrusions, echoes a similar point of view, ?We were lucky to have emerged unscathed at a time when the markets were volatile.? The IPO size of the Jalgaon-based company that manufactures PVC pipes and fittings was Rs 50 crore.
Emaar MGF, SVEC Constructions and Wockhardt Hospitals, of course, were not so lucky. Despite SVEC Constructions and Wockhardt Hospitals not being large issues at Rs 38 crore and Rs 775 crore respectively, the investor response to them was poor. Total subscriptions were just about 24% and 19.5% respectively.
Emaar, in contrast, had its IPO book almost 85% subscribed. Yet the company decided against continuing with its IPO. Says Shravan Gupta, executive vice-chairman and managing director, Emaar MGF Land Ltd, ?Completing the IPO book wasn?t an issue. Our QIB and HNI portions were fully subscribed. We took a call that investors could suffer post listing in these volatile times, which is why we opted to withdraw. But we are leaving the option open of coming back at a later date. We will come back with an IPO.?
Other players are also not averse to coming back to the capital market at a later time. Says Sreeman Chalasani, executive director of Hyderabad-based SVEC Constructions Ltd, ?We are not ruling out the possibility of coming back to the capital markets at a later stage.?
Suffering a loss on account of calling off its IPO is not deterring companies. Says Gupta of Emaar, ?I don?t see this as an issue because we are not desperate for capital. We do have some breathing space. Plus our debt-equity ratio is less than one. So the option of taking debt at the holding company or SPV level is there.?
Besides debt, the option of private equity is also available to a firm. It?s something that both Emaar and SVEC are not averse to. The former already tapped into it at the pre-IPO stage, where it garnered about Rs 5,000 crore, according to Gupta.
One reason for this urge to come back to the capital markets is the valuation that a company can enjoy through the exercise. That is the single biggest reason that draws a company to a public listing.
As Chalasani puts its, ?We wanted to increase our net worth to be able to bid for long-term projects.? Adds Gupta of OnMobile Global, ?Listing on the bourses would increase our profile with international players with whom we intend doing business going forward.? This need to increase credibility, profile and net worth implies that often valuations are stretched and price bands aggressive during listing.
In fact, the main reason attributed to the current IPO bubble burst is that companies were too aggressive with their list prices. So what is the way forward in the current scenario?
?Being patient is one way out,? says Lokesh Nathany, national head, distribution, wealth management & PMS, Almondz Global Securities Ltd. ?Large issues are clearly not the flavour of the season. Moreover, if an issue is aggressively priced, there are chances that investors may not subscribe to it. So if a company is seeking better valuations, it would have to wait till the sentiment improves in the market.?
