Mumbai: Wockhardt Hospitals Ltd pulled its failed initial public offering (IPO), the first official casualty of what merchant bankers say is now a distinct slowing of public offerings.
Many Indian firms are now likely to postpone their plans to raise funds in the capital markets “because of fear,” predicts Narayan Ramachandran, chief executive of Morgan Stanley Investment Management Pvt. Ltd.
Offer period of another ongoing IPO, that of builder Emaar MGF Land Ltd, has already been extended by three days with its price pared twice.
No takers: Brokers react while trading in Mumbai. The Indian IPO market started the year with a bang but the sentiment changed dramatically from mid-January when the equity market started turning volatile.
Wockhardt had slashed its price band from Rs280-310 to Rs225-360 for its Rs800 crore issue that opened on 31 January. It was slated to close on 5 February but was extended by two days to 7 February. It finally had to be shelved as it could sell only 20% of the 25 million shares that it floated.
Emaar’s issue, which was originally set to close on Wednesday, was subscribed 83% as of Thursday.
With not many takers around for new floats, merchant bankers, who also act as underwriters to such issues, have started demanding higher fees from firms that might still be brave enough to want to come to the market. This is because they feel that the risk associated with an issue being undersubscribed has gone up significantly.
In India, there is no “hard” underwriters to public issues who buy the unsubscribed portion of an issue. However, the merchant bankers do “soft” underwriting. They are responsible for putting in money if investors, after bidding for shares, do not pay up on allotment.
Under the norms, institutional investors who are normally allotted 60% of a float, need to pay upfront only 10% of the value of shares.
Investment bankers also say that not too many firms will dare to enter the market now.
“Underwriting charges could go up but only if issuers are willing to hit the market,” said Ranganath Char, investment banking head at JM Financial Ltd, a domestic financial boutique-shop.
The Indian IPO market started the year with a bang with Future Capital Holdings Ltd’s Rs491.34 crore issue attracting subscription 133 times size of the float.
It was closely followed by Reliance Power Ltd’s Rs11,700 crore IPO, the biggest ever in Indian market, that was sold within a minute of opening for subscription and subscribed 73 times.
But, the sentiment changed dramatically from mid-January when the equity market started turning volatile and the Sensex, India’s benchmark stock index, started slipping with foreign institutional investors selling stocks.
The last IPO to close was that of IRB Infrastructure Ltd. It was subscribed four times and fixed its issue price at Rs185 per share, the lower end of its price band.
Sanjay Agarwal, managing director and head of global corporate finance, of German bank Deutsche Bank AG in India, also says fresh IPOs are unlikely to appear until the uncertainties are over.
“Most issuers are not comfortable to launch IPOs until there is change in the current trend in the secondary market,” said Agarwal, who helped manage the IRB float.
Between 15 January, when the Reliance Power IPO opened for bids, and Thursday, the Bombay Stock Exchange’s benchmark Sensex index has dropped 13.5%, in sync with global equity markets. According to industry estimates, public issues worth Rs75,000 crore were set for 2008 in India. Thomson Financial’s IPO data-tracker report noted this week that “India, (so far) accounts for 49.1% of global IPO proceeds this year.”