IPO - WILL DEC BREATHE LIFE INTO THIS MARKET?

By Ruma Dubey

Earlier, minting money in the IPO market, for promoters as well as investors was such an easy task. The dot com boom and then the aqua culture, oil seed companies, textile and NBFCs; these companies made the entire process of making money so easy. But then again, these very same companies made the IPO markets sick, dumping it with poor quality issues, price for which many investors continue to pay.

Well, this fiscal has been especially bad for the Indian IPO markets. According to a report by Prime Database, corporate houses have mobilised Rs 772 crore through public equity issues during H1FY13 as against Rs 9,553 crore raised in H1FY12, a sharp decline of 92%.

But now many confer that the near comatose IPO market in India has started showing small signs of life. Maybe but the point is – are these vital signs of life sustainable or are they mere blips on the monitor?

Last week saw the tepid show from Hindustan Copper. As against a target of Rs.1300 crore, the PSU, despite the steep discount to the market price in the offer price, ‘managed’ to mop up just Rs.810 crore. And the issues sailed through, thanks, like always to LIC and other PSU banks. The govt plans to raise money from Hind Copper in two phases; the first is over and now the second remains though after this show, one wonders whether the Govt will be able to go through with it after the poor response the first time.

The Govt hopes to raise Rs.30,000 crore in current fiscal through its divestment plan and the coming months are expected to see a frenzy of activity. The Govt is happy that the issue of Hindustan Copper sailed through and not disappointed that it could not raise the targeted amount. And that explains why its optimism about raising Rs.30,000 crore has not wavered despite the poor response.

Thus the primary market is expected to see activity from PSU offers - Rashtriya Ispat Nigam, Hindustan Aeronautics, BHEL, SAIL, MMTC, Nalco, Oil India, NTPC and MNDC. So despite Hindustan Copper, over the next 4 months, these issues are expected to hit the marquee. Obviously, LIC and the PSU banks will have to be in a ‘stand-by’ mode as they might be called for a rescue.  

Apart from the PSUs, the market is excited about the Rs.5500 crore IPO from Bharti Infratel, which filed for approval with SEBI and is tentatively looking at Dec 10th as the opening date for the IPO. Another eagerly anticipated IPO is from rating agency CARE which is also scheduled to open in Dec. These two issues have tremendous brand equity and all now depends on the pricing of the issue. Another Rs.500 crore issue is coming from PC Jewellers, and maybe the success of TBZ might evoke some response but once again, it all depends on the market conditions.

A look at SEBI’s website shows that some companies have indeed decided to take the plunge. Veto Switchgears, SMC Global, Madhya Bharat Agro, Calyx Chemicals, Just Dial, G B Tools, V-Mart Retail, Fast Train Cargo, Tristar Retail, UIC Udyog, Usher Eco, Hindusthaan Eco Ventures. But when these issues see the light of the day? If IPO of Bharti Infratel does well, one can be assured that we could see the much delayed IPO from Anil Ambani, Reliance Infratel also taking off.  

But if one looks at the global trend, there is not really much to cheer about. In Asia, a few IPOs in Malaysia managed to do well but Hong Kong the main hub of Asia, continues to have a drought. But all eyes are eagerly awaiting the $3.6 billion IPO of state-owned People's Insurance Co. (Group) of China Ltd., or PICC, one of China's largest insurers and Hong Kong’s biggest IPO by a mainland Chinese company in more than two years. But the success of this IPO, should not be taken as a sign of revival as more than 50% of the IPO money is to come in from institutional investors who have already committed to the IPO.

In America, of the 437 companies which filed for an IPO in 2012, 178 companies have withdrawn or postponed their listings and in November, there was a backlog of 30 companies which were planning their IPOs. Thanks to the poor show by the IPO of Facebook, many are having a rethink.

Thus this current spur of action which we are seeing in the market today should not be taken as a sign of revival. What the markets and the investors need is a good, fundamentally sound company with an IPO which is reasonably priced. Now that sounds almost like a myth, a figment of our imagination. Investors have the cash and will invest if the offer is good. But we need one such solid company which will have the courage to break the jinx. Is there anybody out there?