Offering exits for PE funds key aim of IPOs in 2018, shows data
Private equity firms exiting companies through an IPO is a healthy sign to some extent, said Prime Database MD Pranav Haldea
Mumbai: Though the primary markets have seen hectic activity in the first half of 2018, there has been no change in demand for fundraising through initial public offerings (IPO). The heavy rush for IPOs is driven by offers for sale, which gives an exit route to private equity (PE) players or existing shareholders, data showed.
Despite the volatility in the equity markets, with the Nifty gaining just about 1.74% in the six-month period, 18 companies raised ₹23,438.59 crore through IPOs, compared to the ₹11,774.41 crore by 13 companies in 2017, according to data provided by Prime Database. In fact, only ₹6,454.48 crore was raised in fresh capital.
Pranav Haldea, managing director at Prime Database, said it is a worrying phenomenon. “Even in the last few years, when the IPO market had been strong, share of fresh capital as a percentage of total funds raised has been quite low. It points to the fact that not many promoters and companies have the confidence to raise fresh capital for expansion, diversification or acquisition.”
Haldea, however, said that PEs exiting companies through an IPO is a healthy sign to some extent. “Typically, venture capitalists and PEs take risk in investing in a company at an early stage and it is an important part in the entire fundraising cycle. So, once VCs and PEs exit from existing companies, they can invest further in other firms,” he added.
Apollo Micro Systems Ltd was the only company to raise funds through an IPO for capital expansion. The issue, with a price band of ₹270-275, saw huge subscription of 248.51 times. It raised ₹156 crore. Other big issues launched during the period were by Bandhan Bank Ltd, Hindustan Aeronautics Ltd, ICICI Securities Ltd and IndoStar Capital Finance Ltd.
According to Haldea, the IPO pipeline looks robust for the year, but added that fundraising for capital expansion may take time. “Component of fresh capital in fundraising will happen as the economy picks up,” he said. “We have already seen the government increasing its spending. In the past also we have seen private capex follows government spending.”
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