Sebi Takes Tougher Approach to IPO Clearance; returns the scrap paper of 6 cos
Besides OYO, the companies whose draft documents have been returned by the regulator are – Go Digit General Insurance Ltd, a company backed by the Canada-based Fairfax Group; local mobile maker Lava International; B2B payments and services provider Paymate India; Fincare Small Finance Bank India and integrated services company BVG India, according to data analysis with Sebi.
The six companies had filed their preliminary IPO documents with Sebi between September 2021 and May 2022 and their documents were returned from January to March (until March 10).
Together, these companies hoped to raise at least Rs 12,500 crore.
Sebi has gotten tougher in his approach while greenlighting IPOs after investors lost their money in some of the top initial stocks in 2021 and according to data compiled by Primedatabase.com, the average time taken by the market regulator in approving an IPO in 2022 was 115 days. “After the IPO fiasco following the IPO of new era digital companies like Paytm, Zomato and Nykaa in which investors lost heavily, Sebi has tightened IPO approval standards. This is welcome and is in the interests of investors,” VK Vijayakumar, Director Investment Strategist at Geojit Financial Services, said.
However, at the end of the day, investors need to apply their minds when applying for IPOs and avoid costly problems, he added.
One97 Communications, the parent entity of digital payments company Paytm, made a disappointing debut on the stock exchanges in November 2021. The company’s Rs 18,300 crore IPO was the largest on Dalal Street after Coal India . The digital payment company’s stock was still trading 72% below its issue price. Prakhar Pandey, Founder and CEO of Moolaah, believes that Sebi’s recent decision sends a strong message to investment bankers to fully comply with all of the information required to provide the draft prospectus and disclose all information. required well in advance, rather than a full back-and-forth between bankers, IPO-related firms and regulators.
Earlier, Sebi continued to grant grace periods for most companies to file their full set of compliant documents, resulting in a high gestation period of up to four months last year. This could lead to a big distortion in terms of the IPO price range, he added.
So far this year, only nine companies have approached Sebi with their draft IPO documents amid extremely volatile market conditions and nervous investor sentiment.
Moreover, only two companies – Divgi Torqtransfer Systems and Global Surfaces – have launched their initial share sales to raise Rs 730 crore since the start of the year, while Udayshivkumar’s Rs 66 crore IPO is expected open next week.
This came after 38 companies collectively raised nearly Rs 59,000 crore through IPOs in 2022, which was far lower than the Rs 1.2 lakh crore mopped up by 63 companies in 2021, which was the year from IPO in a decade.
The overall collection in 2022 would have been much lower without the Rs 20,557 crore-LIC public offering, which accounted for up to 35% of the total amount collected during the year.
Investors remained nervous throughout 2022 due to recession fears and rising interest rates amid soaring inflation.
Experts believe that some activity on the IPO front could only be seen in the second half of the 2023-24 fiscal year.
“A multitude of factors such as rising interest rates, a global banking crisis, REIT exits, slow economic growth, inflation control and some governance issues in large companies with low earnings and high valuation multiples are the cause of the market correction.
“These challenges, when fully addressed, is when we could see private companies entering the public markets, likely in the second half of FY24, and existing IPO applications at Sebi could wanting to wait for that lull, to derail those pessimistic market sentiments,” Pandey said.
Given the turmoil in the market right now, only good, attractively priced companies will get a good response from investors, Geojit’s Vijayakumar said.