India IPOs: Best intentions

None of the investors - KKR, New Silk Route Partners and Standard Chartered Private Equity - plan on selling any shares in the IPO; the proceeds have been earmarked for debt repayments, expansion and refurbishing the existing network. However, it represents a significant liquidity event in a market that has largely failed to live up to expectations in terms of PE exits.

India's strong public markets have proved a boon for private equity. Five PE-backed offerings have raised $326.8 between them on the Bombay Stock Exchange and the National Stock Exchange of India so far this year, according to AVCJ Research. This is still well short of the $2.2 billion raised through 22 IPOs in 2010, but it is already higher than any of the 12-month totals from the last three years.

Several other companies with PE sponsors have joined Coffee Day in submitting applications to the Securities and Exchange Board of India (SEBI) in the last couple of weeks, among them Matrix Cellular and RBL Bank.
This activity comes at a time when SEBI also appears to be acting - to a certain extent - on longstanding gripes from investors about bureaucratic obstacles holding back IPOs. Chief among these is the amount of time it takes to get approval for a listing, which can be as long as a year due to the level of scrutiny applied by the regulator to new candidates.

There are also concerns about the concept of the promoters and the lock-in of shares. SEBI requires that at least 20% of a promoter's post-issue capital be locked-up for three years. However, in the case of private equity-backed companies the promoter often doesn't hold as much as 20%, while the largest shareholder is typically a financial investor looking to exit.

What SEBI is now proposing is no panacea but it is certainly a step in the right direction. On general IPOs, there are plans to reduce the period between the offering and the listing from 12 days to six days, improve access to offerings for retail investors, and cut the costs involved in public issues of equity shares and convertibles. Follow-on offerings and rights issues can also be fast-tracked in certain cases.

More significantly, the regulator looks said to push ahead with a trading platform for technology start-ups. Companies will be subject to shorter lock-up periods and lower disclosure requirements, although limits will be imposed on the kinds of investors who can participate in this market and the size of individual ownership stakes.

Since 2004, India has seen more than 4,000 PE investments of varying types, yet only about 140 of these companies have listed on domestic stock exchanges. This compares to 8,000 deals in China and close to 900 IPOs in Shanghai, Shenzhen and Hong Kong. SEBI's reforms are not about to redress this balance, but they may convince more companies to list at home.

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• Topics
• South Asia
• Consumer
• Exits
• GPs
• India
• IPO
• KKR
• NSR New Silk Route Partners
• Standard Chartered Private Equity
• Exit
• GPs