Turmoil in the secondary market is likely to derail the fund-raising plans of companies, especially in the private space.
As many as 10 companies, which had lined up their initial public offerings during the first half of December, ahead of the FIIs? holiday season, are now likely to face delays. Sharp correction in the secondary market and poor investor sentiment is already affecting participation in some of the ongoing IPOs. Some private companies that are scheduled to hit the capital markets during December include A2Z Engineering, Greatship, Nimbus Communications, Lavasa and Embassy Property.
?Many issues which where planned in the first week of December are unlikely to happen due to the volatility in the secondary market,? said Girish Nadkarni, executive director, head-equity capital markets, Avendus Capital, which is co-managing the Rs 120-crore IPO of One97 Communications. IPO of One97, which was supposed to hit the markets on Wednesday (December 1), today (November 29) announced postponement of the issue to December 13.
Last week, Ahmedabad-based pharma company Claris Lifesciences lowered its price band by 20% and also extended the issue by four working days due to poor investor response for its IPO. ?For IPOs to happen, promoters will have to either reduce the pricing(valuations) or wait for the market to recover. Promoters don?t want to compromise much on the valuations front, so they prefer waiting,? said a merchant banker.
Among the sectors, worst hit is the real estate space. Realty firms Lavasa Corporation, Raheja Universal and Embassy Property, which had initially planned to launch their IPOs in December, are likely to face significant delays due to the bribe-for-loan scam.
?It will be really difficult for real estate companies to come out with an IPO at this stage with lot of questions being raised about their transparency and higher debt levels,? said Jagannadham Thunuguntla, equity head of SMC Capitals.
The benchmark BSE Sensex has fallen 7.62%, or 1,600 points, from the peak of 21,005 touched on November 5, while the BSE realty index has plummeted 27% during the same period.
?Markets need to be a little stable for investors to come back,? said Nadkarni.
A lot of companies are hoping that the markets stabilise so that they can launch their offerings in the second or third week of December, according to merchant bankers in the know.
Normally, merchant bankers don?t launch IPOs between December 15 and January 10 as foreign institutions are less active during this period due to the holiday season.