February 2010 will see three big PSU follow-on public offerings (FPOs) hit the market

February 2010 will see three big PSU follow-on public offerings (FPOs) hit the market
February 2010 will see three big PSU follow-on public offerings (FPOs) hit the market. These include those from NTPC, NMDC and REC. The Union Budget will also be presented in February. Typically, April is the month where companies report their fourth quarter earnings and it’s also the time for advance tax payment. As such most bankers are looking at a post-April listing.

Despite a huge pipeline of issuances, the current calendar year is likely to see a slower rollout of initial public offerings (IPOs) at last count as many as 41 prospectus are awaiting Sebi clearance, with some more waiting to be filed.

Even if the necessary regulatory approvals are obtained before the end of this month, most companies are unlikely to hit the market before the completion of mega PSU issuances lined up in February. Last month, five issues have been cleared, and none so far this month.

“There is a clogging up at the Sebi end. Prospectus filed as late as September 2009 are yet to be cleared,” said an investment banker with a foreign bank. “If the September deals had been cleared in December 2009, we could have seen a few hit the market by end-January. With February and March being crowded months, one may not see any offerings come to the market in these months,” he said.

If one were to do a random check, of the six documents filed on September 25, ‘09 (including one rights), only one IPO has received clearance. Of the 10 documents filed on September 29, ‘09 (including one rights), only the rights issue was cleared. Of the 13 documents filed on September 30 (including four rights), only one issue was cleared. Significantly, the REC prospectus, which was filed on December 1, 2009, had received observations by December 31.

Interestingly, this will be the first time that the auction methodology will be introduced in FPOs. Sebi had in November 2009 said the auction-based book-building method for FPOs will allow QIBs or institutional investors to bid for shares at any level above a floor price and shares will be allotted at different prices.

Under the new method, bidders will be free to bid at any price above the floor price. At present, allotments are made at the floor price. Retail investors, however, will be allotted shares at the floor price.

Of the 41 prospectus filed with Sebi, 12 are from realty firms, while four more are borderline real estate/infrastructure companies. Some bankers believe that the market is not ready for so many real estate IPOs. Real estate companies that are awaiting Sebi clearance for IPO’s are Sahara Prime, Lodha Developers, DB Realty, Kumar Builders, Nitesh Estates, Prestige Estates, BPTP, Ambience, Neptune Developers etc.