Infrastructure construction company Rithwik recently opted for a private equity investor (Baring Asia) as against an initial public offer for its fund requirements.
Though the Hyderabad-based company had filed its draft red herring prospectus with the Securities and Exchange Board of India, it changed its decision to go ahead with the process because of volatile stock markets and the resultant impact on its valuations.
Rithwik is not an isolated case. There are a host of companies that have filed the prospectus with the capital market regulator, but have chosen against it.
According to the norms, a company has to come out with its public issue within 90 days of its prospectus being approved by Sebi. If it fails to launch the IPO within the stipulated time, the approval lapses and the company has to restart the exercise.
According to Delhi-based Prime Database, a company that tracks the developments in the primary capital market, Acme Tele Power (Rs 1,200 crore), Pride Hotels (Rs 250 crore), Vascon Engineers (Rs 350 crore), TCG Lifesciences (Rs 175 crore), Surya Foods & Agro (Rs 136 crore), Neel Metal Products (Rs 125 crore) and Prince Foundations (Rs 300 crore) have received the Sebi approval, but have not tapped the market.
When markets are topsy-turvy, everyone -- including the companies' management, merchant bankers, retail and institutional investors -- chickens out.
"It's the question of valuation and whether the market is willing to take it. It also depends on how keen the company is in raising funds through the IPO, the opportune time and the urgency to list it," said a senior executive of a leading investment bank, who is currently doing road shows for companies to assess the appetite of financial institutions for IPOs that has dried up substantially in recent times.
The support of well-known institutional investors, to a large extent, boosts the success rate of an IPO.
Bankers opine that not only retail investors, but even institutional investors are very cautious of investing in this market condition.
However, there are exceptions too. Companies with smaller issue sizes were brave enough to come out with their issues and did meet with decent subscription.
For instance, Gokul Refoils and Solvent, Anu's Laboratories and Aishwarya Telecom sailed through the IPO market quite comfortably.
Consider this: 2007 saw 100 companies raising Rs 34,179 crore from the primary market, but during the four months of 2008, 18 companies have raised about Rs 14,908 crore.
"IPOs can be typically floated only in a stable or a buoyant secondary market. First the market crash in January this year and then huge volatility thereafter have made most issuers wary.
"The issuers expect higher value, but the market is in no mood to accept it, given the present depression. As many as 24 companies have currently got the Sebi approval and, in good times, they would have immediately rushed to the market. Given some stability in the market, the good news is that at least some of these, including UTI Asset Management, are now gearing up with their plans to hit the market," said Prime Database CMD Prithvi Haldea.