One97 forced to defer IPO

The sharp correction in the stock market may take the wind out of sails of the IPO market.

The sharp correction in the secondary market may take the wind out of sails of the primary market. Mobile VAS player One97 Communications on Thursday had to defer its proposed Rs 120-crore initial public offering (IPO) for the second time due to volatile market conditions. The Rs 1,500-crore IPO of L&T Finance,which was supposed to hit the markets in December,has been deferred to next month. Meanwhile,Shipping Corporation of India (SCI), which closed its Rs 1,100-crore follow-on public offering (FPO),earlier this month,slipped below the issue price of Rs 140,to close at Rs 139.35,after hitting a low of Rs 132,on Thursday.

Investment bankers believe it is unlikely there will be any more issues in December after the IPO of state-run Punjab & Sind Bank,which opens next week given the market volatility and sharp fall in prices,especially of midcap and small cap companies. The BSE Midcap and Smallcap indices are down 17% and 22% respectively since November 5,2010.

The secondary market is a very important sentiment and valuation driver. The price-to-earnings multiples of several companies have come down sharply and therefore pricing of issues becomes a challenge, said S Subramanian,MD,Investment banking,Enam Securities. Girish Nadkarni,ED & head (equity markets),Avendus Capital,adds,Pricing of issues becomes very difficult if stocks correct 20% in a single day.

Already,most IPOs that were made in recent months are trading significantly below their issue prices. The share price of new entrants such as RPP Infra,BS Transcomm and Gyscoal Alloys are down 22%,48% and 52% respectively.

The performance of some of the recent IPOs have definitely dented the sentiment in the primary market. We will have to wait for the markets to get stable before we see any more issues, said Nadkarni.

The ongoing IPOs of RK Distilleries and A2Z Maintenance,too,are getting hardly any takers from the qualified institutional buyers (QIB) category. RK Distilleries,which was last subscribed 52%,didnt even receive a single bid from institutional investors even at the end of day 2 of the issue,while A2Z Maintenance,which was last subscribed 81%,witnessed merely 12% subscription in the QIB category. Both the IPOs close on Friday. Investment bankers say foreign investors are completely avoiding participation in IPOs of small- and mid-cap companies,as they approach their holiday season,because of the series of scams that have surfaced.