Wednesday, March 26, 2008

IPOs worth Rs 350 bn may be under deferral mode

Crash, and the subsequent volatility in the stock market, adversely hit IPO plans of India Inc. As many as 20 companies, which were planning to collectively raise Rs 37.18 billion have already deferred their IPOs.

These companies are already holding approval from SEBI and are now waiting for better times to enter the market. This is as per the study done jointly by ASSOCHAM and Prime Database. These 20 companies include Acme Tele Power, Pride Hotels, Prince Foundations, Vascon Engineers and Xenitis Infotech.

According to Prithvi Haldea, co-chairman of the capital markets committee of ASSOCHAM, plans of another 44 IPOs, collectively planning to raise Rs 310 billion, which are presently awaiting SEBI approval, may also be hit until the markets recover. These include the IPOs of Ashoka Buildcon, DB Corporation, Future Ventures, Jaiprakash Power Ventures, JSW Energy, Mahindra Holidays, NHPC, Oil India and Reliance Infratel.

Haldea, however, added that some of these 64 pending IPOs might still go ahead with their IPO plans, though at reduced valuations, even in the present market conditions.

It may be mentioned here that at the beginning of the year, ASSOCHAM and Prime Database had estimated that, subject to stable secondary market conditions, the calendar 2008 would have seen mobilization of nearly Rs 600 billion through IPOs. The first three months of the year have seen 17 IPOs aggregating Rs 149 billion, and this amount much have been larger but for the crash in the secondary market in later part of January.

On another front, the ASSOCHAM president, Venugopal N. Dhoot said that he had already submitted a detailed representation to Ministries of Finance and Corporate Affairs including the SEBI, demanding that the government should not act in haste to increase public participation in listed companies to the extent of 25% from the existing 10%.

Dhoot added that the ASSOCHAM has urged the authorities concerned not to push this proposal as proposed within a period of 3 months but take at least a period of 5 years to accomplish the same.

The ASSOCHAM chief further pointed out that considering the economic growth of the country and the market capitalization of listed securities, the government should not uniformly initiate increase in public holdings in listed companies to the extent of 25% in one go.

The chamber has cited a recent study of the top 30 companies by market capitalization which indicates that only 3 of 30 companies have a public shareholding below 25% if the holding of financial institutions (FIs), banks and foreign institutional investors (FIIs) is considered as public shareholdings and only 8 of these 30 companies have a public shareholding of 25% if the holding of FIs, banks and FIIs is not considered as public shareholding. The chamber has also argued that same regulations should be applied for public holdings in case of both government and private sector companies.

Besides, the ASSOCHAM is also of the firm view that the power of the stock exchanges to relax any of conditions for listing with the prior approval of SEBI in respect of a government company needs to be withdrawn. Likewise, the powers of SEBI to relax listing requirement of public companies should also be withdrawn.

The chamber`s representation highlights that the present standards for initial listing as prescribed in Rule 19 (2) (b) of the Securities Contracts (Regulation) Rules, 1957 should continue. These provide that at least 10% of each class or kind of securities issued by a company was offered to public for subscription. Conditions include a minimum 2 million securities (excluding reservations, firm allotment and promoter?s contributions) to be offered to the public, the size of offer to the public was minimum Rs 1 billion and the issue is sold only through book building method with allocation of 60% of the issue size to the qualified institutional buyers.

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