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IPO: Languishing markets

Nov 24, 2000

The technology meltdown on the bourses has taken its toll on the primary market. Thought the number of companies which tapped the primary market for raising money have shown a positive trend, the total money mobilised has dropped considerably.During October 2000, just seven companies tapped the IPO (Initial Public Offering) market to raise Rs 1,032 m. This, when compared to the corresponding period of the previous year has come down drastically by 85%. The sharp fall in the valuations of the software scrips has dampened sentiment in the primary market as well.

Company nameIssue size
(Rs m)
Offer price
Balaji Telefilms 364 130
IT&T 317 81
Vision Organics 174 40
Prosoft Systems 85 10
Synfosys Business 38 10
Oasis Infotech 33 10
Essemm Information 22 10
Total 1,032 42*
* average price

Oversubcription rates have to started to languish with investors becoming wary of software IPOs in particular. For instance, in October 1999, public issue of Hughes Software received tremendous response from investors (oversubscribed 40 times the issue size). But in October 2000, book building issues from both media companies i.e. Balaji Telefilms and Creative Eye managed to sail through (with just one time oversubscription to their issue size). The fixed price portion of IT&T Limited, on the other hand, devolved by a huge margin and ultimately, the underwriting lead managers were forced to subscribe to it. This, despite the fact the company had a sound revenue model and a good management.

(Rs bn)Oct-99Oct-00
Public issues 6.8 3.5
Rights issue 0.7 0.1
Private placements 27.3 10.6
Overseas floatations - 6.1
Total 34.9 20.2

Leave alone public issues, the markets do not seem to show any mercy for other means of finance also. Money mobilised from the primary market (comprising public issue, rights issue, private placement and overseas issues) have dropped by 42% to Rs 20 bn (Rs 35 bn in October 1999). Receipts from rights issue and private placement alone have dropped by 61% and 91% respectively in October 2000. However, the US$ 135 m American Depository Receipts (ADR) from Wipro prevented the total receipts from the primary market from a sharp fall.

Even SEBI's amendment of quarterly disclosure of utilisation of funds by companies who raised money via public issues, has not boosted investor confidence. The tech meltdown seems to have taken its toll on the primary market. Who is to blame for this? The investors or the companies!

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