SEBI takes strict stand in IPO clearance; Draft papers of 6 companies returned
After Paytm’s IPO fiasco, Sebi has turned cautious while approving initial share sales as it has returned preliminary papers of half-a-dozen companies, including hospitality chain OYO-run Oravel Stays, in over two months.
These companies have been asked to re-file their Draft Red Herring Prospectus (DRHP) with certain updates.
Besides OYO, the firms whose draft papers have been returned by the regulator are – Go Digit General Insurance Ltd, a firm backed by Canada-based Fairfax Group; domestic mobile maker Lava International; Paymate India, a B2B payments and services provider; Fincare Small Finance Bank India and BVG India, an integrated services company, according to an analysis of SEBI data.
Six companies had filed initial public offer (IPO) papers with SEBI between September 2021 and May 2022 and their papers were returned during January-March (by March 10).
These companies together were hoping to raise at least ₹12,500 crore.
SEBI has become stricter in its approach in pursuing IPOs in 2021 after investors lost their money in some high-profile initial shares and the average time taken by the market regulator to approve IPOs in 2022, according to data compiled by Primedatabase.com. It took 115 days to deliver.
“Following the IPO debacle following the listing of new-age digital companies like Paytm, Zomato and Nykaa, in which investors suffered huge losses, SEBI has tightened the approval norms for IPOs. This is welcome and in the interest of investors is in,” said VK Vijayakumar, chief investment strategist at Geojit Financial Services.
However, ultimately investors will have to use their heads while applying for IPOs and avoid high priced issues, he added.
One97 Communications, the parent unit of digital payments firm Paytm, made a disappointing debut in November 2021 on the exchanges. The company’s ₹18,300 crore IPO was the biggest on Dalal Street after Coal India. The stock of the digital payments firm was still trading 72% lower than its issue price.
Prakhar Pandey, founder and CEO of Mulla, believes that SEBI’s recent move sends a strong message to merchant bankers that they must fully comply with the set of information required to submit the draft prospectus and all important information required disclose, rather than the exhaustive back and forth between bankers, firms involved with the IPO, and regulators.
Earlier, SEBI continued to give grace period to most firms to file their complete set of compliance documents, which led to a higher gestation period of four months as compared to the previous year. He said that this could lead to a big mess in terms of the IPO price band.
So far this year, only nine companies have approached SEBI with their draft IPO papers amid extremely volatile market conditions and jittery investor sentiments.
Moreover, only two companies – Divgi Torqtransfer Systems and Global Surfaces – have issued their initial share sales to raise ₹730 crore since the beginning of the year, while Udayashivkumar’s ₹66 crore-IPO is set to open next week.
This came after 38 companies collectively raised close to ₹59,000 crore through IPOs in 2022, much lower than the ₹1.2 lakh crore raised by 63 companies in 2021, which was the IPO year in a decade.
The total collection in 2022 would have been much lower had it not been for the ₹20,557 crore-LIC public offer, which was 35% of the total amount raised during the year.
Investors remained nervous till 2022 due to fears of recession amid rising inflation and rising interest rates.
Experts believe that some activity on the IPO front can be seen only in the second half of FY 2023-24.
“Several factors such as rising interest rates, a global banking crisis, FPI outflows, slow economic growth, subdued inflation, and some governance issues in large corporations with low earnings and high valuation multiples are factors for the market correction.
“These challenges, once fully addressed, is when we may see private companies hitting the public markets, probably in the second half of FY24, and the current IPO applications at SEBI to derail these pessimistic market sentiments Want to wait for this period,” Pandey said.
Geojit’s Vijayakumar said given the volatility in the market right now, only well-priced companies that are attractively priced will get a good response from investors.