Sebi takes stricter approach in IPO clearing; Returns a thumbnail of 6 companies

After Paytm’s IPO fiasco, Sebi has been cautious in allowing IPOs as it has withdrawn pre-filings of half a dozen companies, including Oravel Stays, which runs hospitality chain OYO, in over two months. These companies were asked to resubmit the Draft Red Herring Prospectus (DRHP) with certain updates.

Apart from OYO, the firms whose draft documents were returned by the regulator were: Go Digit General Insurance Ltd, a Canadian-based Fairfax Group-backed firm; domestic mobile phone manufacturer Lava International; B2B payments and services provider Paymate India; Fincare Small Finance Bank India and integrated services company BVG India, according to Sebi data.

Six companies filed preliminary initial public offering (IPO) papers with Sebi between September 2021 and May 2022 and their papers were returned in January-March (till March 10).

Together, these companies were hoping to raise at least Rs 12,500 crore.

After investors lost money in some high-profile initial stocks in 2021 and the market regulator’s average time to allow IPOs, Sebi has tightened its stance, according to data compiled by In 2022, IPO approval took 115 days.

“Following the IPO fiasco following the listing of new age digital companies like Paytm, Zomato and Nykaa where investors lost heavily, Sebi has tightened IPO approval norms. This is welcome and will attract investor interest,” said Geojit Financial Services Chief Investment Strategist V.K. Vijayakumar.

Ultimately, however, investors should use their own judgment and avoid costly problems when applying for an IPO, he added.

One97 Communications, the parent company of digital payments firm Paytm, made a disappointing debut on the exchanges in November 2021. The company’s Rs 18,300 crore IPO was the largest after Coal India on Dalal Street. The digital payments firm’s shares were still trading 72 percent below their issue price.

Prakhar Pandey, Co-Founder and CEO, Moolaah, believes that Sebi’s recent move sends a strong message to merchant bankers to fully comply with the required information package for filing the draft prospectus and to disclose all required information upfront. complete feedback between bankers, IPO-related firms and regulators.

In the past, Sebi continued to grant grace periods to many firms, filing a complete set of relevant documents, leading to a high gestation period of up to four months last year. This could lead to a large distortion in the IPO price range, he added.

So far this year, only nine companies have approached Sebi with draft IPO documents amid highly volatile market conditions and investor sentiment.

Meanwhile, only two companies – Divgi Torqtransfer Systems and Global Surfaces – have floated IPOs to raise Rs 730 crore since the start of the year, while Udayshivkumar’s Rs 66 crore IPO is scheduled to open next week.

This comes after 38 companies raised nearly Rs 59,000 crore through IPOs in 2022, much lower than the Rs 1.2 crore raised by 63 companies in 2021, the year of IPOs in the decade.

Had it not been for the LIC open offer of Rs 20,557 crore, the total collection in 2022 would have been much lower, accounting for 35 per cent of the total collected during the year.

Investors have been wary of interest rate hikes throughout 2022 amid fears of a recession and rising inflation.

Analysts believe that some activity on the IPO front can be seen only in the second half of the financial year 2023-24.

“Many factors like rising interest rates, global banking crisis, FPI inflows, slowdown in economic growth, suppression of inflation and some governance issues in large corporates with low earnings and high valuation multiples are correction factors in the market.

“Once these challenges are fully resolved, we are likely to see private companies coming to the public markets, probably in the second half of ’24, and IPO filings at Sebi may want to wait for this period of lull to break this pessimistic market sentiment,” Pandey said.

Given the turbulence in the market now, only attractively priced good companies will get good response from investors, said Geojit’s Vijayakumar.

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(This story was not edited by News18 staff and was published by a syndicated news outlet)

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