The sharp correction in the stock markets has not only taken its toll on initial public offerings but has also affected almost all private placements scheduled in the next couple of months. On conservative estimates, over a dozen listed entities planning to mop-up around $5 billion through private placement are caught in a bind by the sharp correction in the stock prices.
Big names like realty major Unitech, infrastructure player Jaiprakash Associates, Patel Engineering and Parsvanath Developers had planned private placements to qualified institutional investors. They are deferring plans because the market prices of their scrips are 25 per cent below the average of the six-week price. Regulations do not allow private placement below the average six-week price of a scrip.
“While institutional investors are ready to invest in many of these companies at current market prices or even with marginal premiums, they cannot because norms do not permit,” said an investment banker.
After Reliance Power’s poor show on listing day, investors are expected to shy away from forthcoming IPOs, feel bankers and analysts. “Investors are risk averse to the extent that they have turned into day traders. No one wants to hold on for six months,” said Amitabh Chakraborty, president, Religare Securities.
The secondary market volatility and poor performance of newly listed companies are bound to affect all imminent IPOs. Over 30 IPOs are slated in the next couple of months. Barring a handful, almost all companies have deferred plans to enter the market after the Wockhardt Hospitals and Emaar MGF issues bombed.
This would affect those companies looking to the capital market to fund their capital expenditure, said bankers. Many of the projects undertaken by these companies are halfway through and equity capital is critical to achieve financial closure.