Blame it on choppy mkt, small cos defer IPO plans
The erosion in share valuation, post the decline in prices from its peak, is having its repercussions on the primary market.
By Nishanth Vasudevan, TNN |
MUMBAI: The erosion in share valuation, post the decline in prices from its peak, is having its repercussions on the primary market. Several smaller companies, which have received the go-ahead from Sebi for their public issues, are deferring their plans to open the offer to the last possible date. It is felt that current valuations deny them the opportunity to derive the maximum from these offers.
“Some companies are postponing their issue opening to the second-half of the 90-day window after they get Sebi’s approval,” said K Srinivas, MD, Saffron Capital Advisors, a Mumbai-based investment bank.
The prospects of the initial public offer (IPO) market is directly linked to the performance of the secondary market, which is yet to see a breakout from bouts of volatility post-correction. The valuation of a listed company plays an important role in valuing its unlisted counterpart in the industry.
The broad-based rally till mid-May last year had enabled the promoters of several mid- and small-cap companies lock in handsome profits by offloading a part of their stake through an IPO. But, with most mid- and small-cap shares falling 30-40% on an average off their highs, promoters feel their companies would not be fairly valued in the IPO and are awaiting a rally in the mid-cap segment.
Analysts, however, feel the mid-cap segment is unlikely to recover its previous peaks, which would mean that promoters would have to settle for lower valuations for their IPOs.
Not helping matters is the lack of interest from the retail segment for smaller issues. This is mainly on account of the fall in share price below the issue price, as seen in several recent instances.
Investment bankers feel it would be difficult to lure retail investors back into smaller issues hereon, as many of them, who have borrowed to invest in IPOs, have not even recovered the issue price from the recent IPOs. Such investors hope for the issue to open at a premium — above their cost of borrowing — and book profits on the day of the listing to repay the loan.
The larger investment bankers blame their smaller counterparts in the business for the abrupt halt in vibrancy in the primary market last year, in addition to uncertainty in the secondary market. “Last year, we saw several companies push through their IPOs with unreasonable valuations.
Bankers should be much more responsible, while bringing a company public and pricing the issue, and not look at short-term benefits,” said a banker at Enam Financial Consultants.
nishanth.vasudevan@timesgroup.com
“Some companies are postponing their issue opening to the second-half of the 90-day window after they get Sebi’s approval,” said K Srinivas, MD, Saffron Capital Advisors, a Mumbai-based investment bank.
The prospects of the initial public offer (IPO) market is directly linked to the performance of the secondary market, which is yet to see a breakout from bouts of volatility post-correction. The valuation of a listed company plays an important role in valuing its unlisted counterpart in the industry.
The broad-based rally till mid-May last year had enabled the promoters of several mid- and small-cap companies lock in handsome profits by offloading a part of their stake through an IPO. But, with most mid- and small-cap shares falling 30-40% on an average off their highs, promoters feel their companies would not be fairly valued in the IPO and are awaiting a rally in the mid-cap segment.
Analysts, however, feel the mid-cap segment is unlikely to recover its previous peaks, which would mean that promoters would have to settle for lower valuations for their IPOs.
Not helping matters is the lack of interest from the retail segment for smaller issues. This is mainly on account of the fall in share price below the issue price, as seen in several recent instances.
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Investment bankers feel it would be difficult to lure retail investors back into smaller issues hereon, as many of them, who have borrowed to invest in IPOs, have not even recovered the issue price from the recent IPOs. Such investors hope for the issue to open at a premium — above their cost of borrowing — and book profits on the day of the listing to repay the loan.
The larger investment bankers blame their smaller counterparts in the business for the abrupt halt in vibrancy in the primary market last year, in addition to uncertainty in the secondary market. “Last year, we saw several companies push through their IPOs with unreasonable valuations.
Bankers should be much more responsible, while bringing a company public and pricing the issue, and not look at short-term benefits,” said a banker at Enam Financial Consultants.
nishanth.vasudevan@timesgroup.com
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