W Power 2024

New listings face the threat of $21.1 bln drain-out with IPO lock-ins set to expire

In March and June, 66 companies will see the expiry of lock-in periods of existing shareholders in various categories

Published: Mar 5, 2024 04:44:54 PM IST
Updated: Mar 5, 2024 04:53:03 PM IST

New listings face the threat of .1 bln drain-out with IPO lock-ins set to expireIn March and June, 66 companies will see the expiry of lock-in periods for existing shareholders in various categories from their IPOs. Image: Shutterstock
Even as new listings bring more money into equities, thus expanding overall market capitalisation, these stocks stand to face the heat once the lock-in periods of various categories of shareholders start opening up. Therefore, whenever there are periods of aggressive fund-raising by initial public offerings (IPOs), they are typically followed by a phase of turbulence atleast for these stocks, as a few categories of shareholders gradually start selling off their shares once the mandatory lock-in periods expire.

In March and June, 66 companies will see the expiry of lock-in periods for existing shareholders in various categories from their IPOs. Subsequently, if these shareholders start selling off their stakes, it may lead to a withdrawal of a total of $21.1 billion, shows an analysis by Nuvama Alternative & Quantitative Research. The analysis considers stocks listed until February 20, 2024.

“The value pertains to the total lock-up opening shares, but it’s important to note that not all of these shares will come for sale as a sizable portion of these shares are also held by promoters and groups,” says Abhilash Pagaria, head, Nuvama Alternative & Quantitative Research.

Some of the companies which raised large sums of money via IPOs and will see their lock-in periods expire within one month to a year are JSW Infrastructure (Rs 2,800 crore), Global Health Rs 2,206 crore), Tata Technologies (Rs 3,042 crore), Indian Renewable Energy Development Agency (Rs 2,150 crore), RR Kabel (Rs 1,964 crore) and Honasa Consumer (Rs 1,700 crore). As many as 40 of the total 57 IPOs in 2023 took place in the four months of August, September, November and December.

Shares of Tata Technologies, which was listed on the stock markets on November 30, will see the expiry of its lock-in period in the five-six month category, with 262 million shares, or 65 percent of the total outstanding shares, getting freed up for sale. These locked-in shares will become eligible for sale from May 27. Tata Technologies had seen a stellar listing, with a 140 percent premium over its issue price of Rs 500.

Similarly, for Honasa Consumer, which owns beauty and skincare brand Mamaearth, its 5 to 6-month lock-in period will end on May 2, thus freeing up 158 million shares (49 percent of total outstanding shares) for sale. Honasa’s shares were listed 2 percent higher than its issue price of Rs 324 a piece on November 7. However, the stock has considerably improved its performance by hitting a life high of Rs 510.75.

Market regulator Securities and Exchange Board of India (Sebi) has mandated different lock-in periods for separate categories of existing shareholders in a company that is listed on the stock exchanges via an IPO. The lock-in filters are meant to arrest immediate decline in stocks after listing. For instance, there is a lock-in of 30 days for 50 percent of the portion allocated to anchor investors, and a lock-in period of 90 days for the remaining portion. Earlier, the lock-in period for anchor investors was 30 days, which caused a drastic decline in share prices after the window of selling opened.

For promoters’ shareholding, the lock-in is to the extent of minimum promoters’ contribution, which is 20 percent of post-issue capital, is for a period of 18 months.

Also read: IPOs and deal activity to be robust in 2024: Kotak Investment Banking

How did primary markets fare in 2023?

Fund raising through the IPO route slowed down in 2023 as the overall stock markets stayed volatile during the year. A total of 57 companies raised Rs 49,434 crore through main board IPOs in 2023, a decline of 17 percent from the previous year. In 2022, 40 companies raised Rs 59,302 crore via IPOs, according to Prime Database. However, excluding the mega LIC IPO in 2022, IPO fund mobilisation in 2023 increased by 28 percent from the previous year.

Of the 57 IPOs, 41 received more than 10 times subscription while nine were oversubscribed by more than three times. The remaining seven were oversubscribed between one and three times.

The largest IPO in 2023 was of Mankind Pharma, with an issue size of Rs 4 326 crore. This was followed by Tata Technologies and JSW Infrastructure. At the other end, the smallest IPO was Udayshivakumar Infra, raising just Rs 66 crore followed by Plaza Wires which raised Rs 71 crore. The average deal size reduced significantly to Rs 867 crore in comparison to Rs 1,483 crore in 2022 and Rs 1,884 crore in 2021, according to Prime Database.

Among sectors, BFSI companies raised Rs 6,190 crore or 13 percent of the total IPOs in 2023. This compares to 46 percent by BFSI companies of the total fund raise in 2022.

The amount of shares applied for by retail investors was 203 percent higher than the total IPO mobilisation, in comparison to being 22 percent lower in 2022. The total allocation to retail, however, was Rs 13,749 crore, which was 28 percent of the total IPO mobilisation (slightly lower than 29 percent in 2022).

Average listing gain (based on closing price on listing date) increased to 29 percent in 2023 compared to 11 percent in 2022. Of the total, 21 IPOs that hit the market had a prior PE/VC investor who sold shares in the IPO. Offers for sale by such PE/VC investors at Rs10,968 crore accounted for 22 percent of the total IPO amount. Offers for sale by private promoters at Rs15,196 crore accounted for another 31 percent of the IPO amount.

The amount of fresh capital raised in IPOs in 2023 was Rs 20,662 crore or 42 percent of the total amount, the highest (in terms of percent share) in seven years. Anchor investors collectively subscribed to 34 percent of the total public issue amount. domestic mutual funds played a slightly more dominant role than FPIs as anchor investors with their subscription amounting to 14 percent of the issue amount, with FPIs at 13 percent.

Qualified institutional buyers (including anchors investors) as a whole subscribed to 57 percent of the total public issue amount. FPIs, on an overall basis, as anchors and QIB, subscribed to 23 percent of the issue amount, more than MFs at 17 percent.

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