The underlying weakness of the secondary markets and increased volatility have taken a toll on the primary market with two issues, including a government-backed offering, facing difficulties in getting fully subscribed.
Garden Reach Shipbuilders & Engineers — a public sector undertaking and a mini ratna company — had to extend its initial public offer (IPO) while also lowering its price band in a bid to get fully subscribed. The issue, which was scheduled to close on September 26, is open till October 1 while its price band had been revised from the earlier ₹115-118 to ₹114-118.
Meanwhile, data from Prime Database shows that this is the first instance of a government entity being forced to extend the closing date and lower the price band in a bid to get fully subscribed. The primary market tracker entity has data since January 2008 and since then, according to it, no PSU had faced a similar situation.
However, there had been earlier instances of IPOs of government entities not getting fully subscribed. In March, the IPO of Hindustan Aeronautics Ltd (HAL) got subscribed 0.98 times.
Interestingly, market participants say that Garden Reach faced difficulties in getting fully subscribed though LIC — which has been the saviour of many PSU offerings in the past — had put in a substantial bid to support the issue.
As on Friday, the IPO of Garden Reach was subscribed 1.01 times, as per data on the NSE website. Further, while the institutional portion was subscribed 1.81 times, the segments reserved for retail investors and high net worth individuals remained largely undersubscribed.
“Considering the fact that even a government offering had to be extended for the first time ever and a private super-hyped housing finance company just about managed to scrape through indicates that investors subscribe only at a certain valuation,” said Arun Kejriwal of Kejriwal Research & Investment Services.
“No matter what, investors will not subscribe to companies with valuations that do not bring money to the table. With two consecutive issues suffering, it is time that merchant bankers and promoters take note of this and price issues reasonably,” said Mr Kejriwal.
On Thursday, the IPO of Aavas Financiers closed with the issue getting subscribed 0.97 times. While the institutional portion of the IPO was subscribed 2.77 times, the segments reserved for retail investors and high net worth individuals was subscribed 0.25 times and 0.26 times, respectively.
