The government’s disinvestment programme, regulatory requirements and hopes of a market revival have prompted several companies to file their initial public offer documents, even as stock market continues to be rocked by volatility.
So far this month, five companies—Indian Railway Catering and Tourism Corp. Ltd (IRCTC), Ujjivan Small Finance Bank Ltd, CSB Bank Ltd, Chemcon Speciality Chemicals Ltd and Mazagon Dock Shipbuilders Ltd—have filed their draft prospectus with the Securities and Exchange Board of India (Sebi). In the previous three months, four offer documents were filed.
“Firms that have sure plans of raising capital would like to remain prepared and wait for an opportune window to launch their IPO as it’s difficult to plan with precision on timing the IPO in volatile markets," said Vikas Khattar, managing director and head of equity capital markets and financial sponsors coverage at investment banking firm, Ambit. Ambit advised Chemcon Specialty, which is looking to raise fresh capital, along with a component of offer for sale via its IPO.
“Companies want to keep their offer documents ready and hold on to Sebi approvals, so that when the market revives, they don’t have to re-initiate the whole process. That’s mainly because filing the offer document and getting the Sebi approval is a time-consuming process that takes five to six months," said Jibi Jacob, head of equity capital markets, Edelweiss Financial Services Ltd. “There will be primarily three types of companies that will look to file their offer documents in the current market—the ones that have to meet some regulatory timelines like small finance banks, the ones for which approvals have either expired, or are about to expire, and the ones in which the government needs to divest its stake," he added.
Four out of five firms that have filed draft red herring prospectus (DRHPs) in August are the ones that are required to abide by certain regulatory requirements, or to meet the government’s divestment target. For instance, CSB Bank, which filed its offer document on 9 August, is looking to go public since the central bank has asked it to get listed by 30 September. It is also looking to raise funds to increase its tier-1 capital to ensure it complies with RBI’s norms requiring banks to maintain 5.5% common equity tier 1 capital to risk-weighted assets ratio, the bank said in its draft prospectus.
In case of Ujjivan Small Finance Bank, the IPO is a matter of urgency as RBI norms require small finance banks to list within three years of starting their operations. The bank filed its draft papers for its IPO on 14 August. It has to list by 30 January, 2020. “The firms which will file their DRHPs by October, and assuming they get Sebi approval in two months, that is, by December 2019, will have time until September-December 2020 to launch their IPOs. Besides those that have to comply with RBI regulations, nobody is going to rush to hit the primary market unless the sentiment turns positive," said Jacob.
The other two firms that filed their offer documents are public-sector firms that have to tap primary markets, in order to meet the government’s ambitious divestment plan of raising ₹1.05 trillion by way of share sales in state-owned companies. “Even though the government’s public market divestment plan is somewhat dependent on market sentiments, shortlisted companies for IPOs would need to be prepared for public listing in advance. And, in that sense, several DRHPs that would be filed will be to meet government’s divestment targets," said Khattar.
“Besides, it’s expected that DRHPs would be filed by quality companies with strong balance sheets and good management teams. Sectors, such as real estate, auto component and infrastructure firms, which have been hit by the present slowdown, may see muted investor interest for some time," he added.