SEBI adopts stricter approval process in IPO clearance, returns DRHP of OYO, 6 other companies
After Paytm's IPO fiasco, SEBI has turned cautious in its approach while giving its go-ahead to IPOs after investors lost their money in some of the high-profile initial shares in 2021.
The Securities and Exchange Board of India (SEBI) has returned the preliminary papers of six companies, including Oravel Stays, which operates the hospitality chain , to refile their draft red herring prospectus (DRHP) with certain updates.
After Paytm's IPO fiasco, which went public in 2021, SEBI has turned cautious and stricter in its approach while giving its go-ahead to IPOs, as investors lost their money in some of the high-profile initial shares in 2021.
Besides OYO, the regulator has returned the DRHP of Go Digit General Insurance Ltd, a firm backed by Canada-based Fairfax Group; home-grown mobile maker Lava International; B2B payments and services provider Paymate India; Fincare Small Finance Bank India, and integrated services company BVG India.
The six companies had filed their preliminary IPO papers with SEBI between September 2021 and May 2022, and their papers were returned between January-March (till March 10).
In total, these companies were hoping to raise at least Rs 12,500 crore in public markets.
According to data compiled by Primedatabase.com, the average time taken by the market regulator in approving an IPO in 2022 was 115 days.
"After the IPO fiasco following the listing of new-age digital companies like Paytm, Zomato, and Nykaa in which investors lost heavily, SEBI has tightened the approval norms for IPOs. This is welcome and is in the interest of investors," VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said.
However, ultimately, investors have to apply their minds while applying for IPOs and avoid high-priced issues, he added.
One97 Communications, the parent entity of digital payments firm Paytm, made a disappointing debut on the bourses. The company's Rs 18,300-crore IPO was the biggest on Dalal Street after Coal India with a huge size and erroneous price offering. Paytm's stock was still trading 72% lower from its issue price.
Prakhar Pandey, Founder and CEO of Moolaah, said the recent move by SEBI gives a strong message to merchant bankers to fully comply with the set of information required to furnish the draft prospectus and disclose all material information required well in advance, rather than a complete back and forth between the bankers, IPO-bound firms, and regulators.
Earlier, SEBI continued to give grace periods to most firms to file their full set of compliant documents, which used to lead to a high gestation period, as high as four months as of last year. This could lead to a big distortion in terms of the IPO price band, he added.
The market conditions have been volatile, and investors have been jittery with only nine companies approaching SEBI with their draft IPO papers so far this year. Only two companies, Divgi Torqtransfer Systems and Global Surfaces, have floated their initial share sales, raising Rs 730 crore collectively. The overall collection in 2022 was much lower than the previous year, with only 38 companies garnering close to Rs 59,000 crore through IPOs.
The collection last year would have been much lower had it not been for the Rs 20,557 crore-LIC public offer, which constituted as much as 35% of the total amount raised during the year.
Experts believe that some activity on the IPO front could only be seen in the second half of FY23-24, as rising interest rates, global banking crisis, FPI outflows, slow economic growth, taming inflation, and governance issues across large corporations with low earnings and high valuation multiples are driving factors for the correction in the market.
Private companies might hit public markets once these challenges are fully tackled. Existing IPO applications at SEBI might want to wait out this period of a lull to derail these pessimistic market sentiments. While there is a lot of uncertainty in the market, experts believe that the IPO market will bounce back once the dust settles.
Considering the turbulence in the market now, only attractively priced good companies will get a good response from investors, Geojit's Vijayakumar said.
(With inputs from PTI)
Edited by Suman Singh