on Feb 21, 2022)MUMBAI: A chemicals company, which had received markets regulator Sebi’s approval to float an initial public offering (IPO), is going slow with its equity-raise plans, thanks to LIC’s forthcoming mega listing that is expected to suck out $10-billion from the system. Similarly, a drug maker, which plans to give a partial exit to its long-time investor through the IPO, has postponed its primary market debut.
Some of the merchant bankers TOI spoke to said that several companies that have filed documents with Sebi to go public are waiting for LIC’s mammoth IPO to get over, after which they plan to launch their maiden public offerings. “Companies do not want their offers to clash with that of LIC’s. We do not expect to see any other IPO being launched up to 10 days before the LIC offer opens and 15 days after it closes,” said one of the leading merchant bankers.
Equirus MD Ajay Garg said, “While the size and scale of LIC’s IPO is large and unprecedented, let us not forget that its timelines and potential have been communicated to the market well in advance. In all prudence, it is better for the companies launching IPOs to stay away during LIC’s as liquidity for others will be weak.”
According to Garg, it’s just a 2-3 weeks’ phenomenon, which is unlikely to stall any of the long-term capital-raising options for companies in any manner. “In all fairness, if an IPO of this scale and size goes through, it will only reinforce the confidence of investors in the capital markets and will increase India’s weight significantly and help with more allocation to the market. We are also going to see an unprecedented new set of retail investors participating in the capital market, which will be long-term positive.”
A recent report by Axis Capital said 41 companies have the regulatory go-ahead to launch their IPOs. BVG India, which handles the cleaning and maintenance of, among others, the Prime Minister’s residence, Parliament House and several other facilities, plans to raise around Rs 1,300 crore via an IPO. It’s delaying its plan to launch the offer. “We hope to launch our IPO by the end of March. But LIC’s IPO could lead to revisiting of the timelines,” said BVG India chairman H R Gaikwad. “We shall reschedule the IPO launch according to advice from investment bankers and legal counsels with respect to its timing and applicability of the new norms, which will come into play from April 1, 2022.”
There is a small number of companies also willing to take the risk of launching an IPO just ahead of the life insurer’s. “We are planning and hopeful of launching our IPO in March ahead of the LIC IPO,” said Prudent Corporate Advisory Services founder Sanjay Shah. Gujarat-based Prudent is one of the largest independent retail wealth management services firms (excluding banks and brokers) in India and among the top mutual fund distributors in terms of average assets under management and commission received.
The LIC IPO, expected to be the nation’s biggest-ever and the fourth-biggest of any insurer globally, is just one concern of companies that are looking to tap primary market. From April 1, new IPO norms will come in, something that “will change the way IPOs are subscribed”, according to Arun Kejriwal of Kejriwal Research.
Sebi, among other rules, has mandated that companies that go for an IPO saying that they will acquire some entity can only use 25% of the amount raised for M&A, plus a maximum of 10% for general corporate purposes. This, said merchant bankers, will reduce the quantum of IPO size.
The government, which plans to sell 5% in LIC, has set a March deadline for the life insurer’s listing. Kejriwal said, “The RBI has stipulated that no investor can borrow more than Rs 1 crore to apply in an IPO. At the same time, Sebi has laid down the splitting of the IPO HNI-NII (non-institutional investor) category into two with one-third of the bucket size of HNI portion of IPOs for Rs 2 lakh to Rs 10 lakh, and the second bucket of two-thirds in size of the total HNI-NII portion at Rs 10 lakh and above. ”
