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Forced Withdrawals

The depressed state of the equity markets has forced 22 companies to call off their IPOs…

It is a well known fact that the mood of the secondary markets affects activities within the pri- mary markets as well. The economic problems in the US and Europe have kept the Indian markets also depressed for quite a while now. Now the primary market is also bearing the brunt of the depressed state of the secondary markets. The foul mood of the secondary markets has led to as many as 22 companies calling off their initial public offers (IPOs) this fiscal year.

Real estate and power companies feature prominently in this list of 22 companies. The real estate companies that called off their IPOs include Lodha Developers, Ambiance Real Estate, Kumar Urban Developers, Neptune Developers, BPTP and Raheja Universal. Among the power companies that called off their IPOs, you have Sterlite Energy, Jindal Power, and Avantha Power. Other major companies include Reliance Infratel, Glenmark Generics and Gujarat State Petro Corp.

All these 22 companies had valid approvals from the Securities and Exchange Board of India (SEBI) for their IPOs. Even then they did not go in for their IPOs within the validity period of one year from the date of SEBI approval. According to a report by SMC Global Securities, a few companies have announced that they will defer their IPOs even though the validity of their approvals from SEBI has not lapsed yet. One97 Communications and Micromax are two such companies.

There are many reasons why promoters call off their IPOs when markets are depressed. One, they fear that the shares they offer for sale may not be purchased. Two, the valuation they get may be modest. So promoters prefer to wait for more buoyant times.

The inability of corporates to raise funds through IPOs will affect their capex plans. Furthermore, this will also affect private equity (PE) funds adversely, as they will be unable to exit from their early-stage investments. PE funds generally invest in unlisted companies and usually exit them through IPOs.