Private sector IPOs succumb to stock market weakness

Investors cold-shoulder to corporate offers but give a thumbs up to public sector floats

BY Siddharth Kumar
Delhi

Volatility and resistance to high valuations in the domestic stock markets in the recent past have dashed the aspirations of several corporate houses that have floated initial public offerings (IPOs), especially small and mid-sized ones.

However, public sector floats have not yet felt the heat.

The high prices of public issues from the private sector have failed to attract investors. The Rakesh Jhunjhunwala-backed A2Z Maintenance & Engineering Company Ltd's IPO, which closed last week, was the latest victim. The issue, after a number of hurdles, was fully subscribed only in last hour of bidding.

Last month, Ahmedabad-based Claris Lifesciences Ltd's IPO, too, failed to attract buyers initially and was forced to reduce its original price range. The issue later sailed through, after the company extended the bidding period.

Faced with a fresh weakness in the market, Delhi-based mobile valued-added services provider One97 Communications, which was set to hit the market in the first week of this month, has postponed the issue for the time being.

Market sources said the company will now come out with its IPO in the second or the third week of January. "It is a natural phenomenon. First-time comers into the capital market hesitate when market is not normal," said Kishore P Ostwal, chairman, CNI Research Ltd, a listed Mumbai-based brokerage firm.

The Sensex is down 1.2 per cent in the last seven days and fell 2.84 per cent in the last one month. But some believe the market downturn is not key to the success of an IPO.

"Pricing of the issue and the fundamentals of a company is the key driver to attract investors," said a senior official at Enam Securities, who did not want to be identified.

The postponement of issues, in fact, started in December as November saw five successful IPOs that raised Rs 16,188 crore. Interestingly, this was more than the total amount raised during the period between January and November 2009: Rs 14,345 crore from 16 issues, according to Grant Thornton.

However, it seems that weak investor sentiment has not deterred public sector enterprises from going ahead with their public floats. Punjab and Sind Bank (PSB) is confident that its IPO, which closes on Thursday, will sail through.

"The issue has been attractively priced and a good amount has been left on investors' table," said Ashwini Mehra of SBI Capital Markets Ltd, one of the lead managers to the PSB offering. Mehra is also a general manger at State Bank of India.

Analysts say that after the Coal India Ltd (CIL) record IPO, investors' perception for public sector offerings has improved. The recently concluded issues of MOIL Ltd and Power Grid Corporation of India Ltd, too attracted investors.

The follow-on public offer (FPO) of the state-run Shipping Corporation of India too was oversubscribed five times, even though the issue price was slightly higher than its existing price on the bourses.

"Volatility is the beauty of market," said PK Anand, executive director, PSB, when asked whether this is the right time to enter the market. “We are confident that the issue will get good response, he added.”

The IPO of PSB, which is the only unlisted public sector bank in India, is priced in the range of Rs 113 to Rs 120 per share.

“Currently, there is enough appetite in the market for public sector papers, and positive sentiment for such issues is helping the state-run entities not to worry about market volatility," Ostwal said.

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