&w=1024&resize=1024,0&ssl=1 "Fresh vs OFS: Hyundai Motor India's mega IPO set to set tilt for 2024 | IPO News")
The initial public offering (IPO) scenario in India is expected to witness a change due to the mega issuance of Hyundai Motor India Limited (HMIL).
So far this year, initial share sales have dominated the IPO space, accounting for 52% of total issuances – the highest share since 2012. However, the entire secondary sale of HMIL shares, valued at Rs 27,870 crore, indicates a reversal.
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Following the HMIL offering, the initial share sale component of IPO activity in 2024 is expected to fall to 36.5 percent. Despite this decline, experts maintain that the robust fund raising of over Rs 33,772 crore through fresh share sales reflects the continued strong demand for growth capital.
“In recent years, capital expenditure has largely been driven by the government. Private players didn't participate as much. Over the past 10 years, private sector investment has been relatively low, but looking at the economy now, new business sector investment has increased. This year, companies from the industrial and infrastructure sector are coming to the market,” said Deepak Kaushik, executive vice president and head of equity capital markets group at SBI Capital Markets.
A company can raise funds through an IPO, issuing new shares, selling existing shares, or a combination of both. Between 1989 and 2012, with two exceptions, new emissions represented more than 50% of the total size of emissions. However, since 2013, secondary issues have become more prevalent to increase private equity investment.
Market analysts point out that as fundraising patterns have evolved over the last decade, private equity (PE) and venture capital are increasingly replacing IPOs as the main source of initial financing. As a result, companies are now turning to the IPO market later in their life cycle. “Private equity investors generally have a horizon of five to seven years, after which they aim to monetize their investment,” said Kaushik.
PE participants also carried out aggressive post-listing share sales, leveraging readily available liquidity. Analysts consider that the offer for sale (OFS) component of the IPO could have been higher if it had not been a secondary market exit option. “PE participants generally do not exit fully during an IPO,” explains Kaushik, adding that they instead tend to do a partial exit and then, after a lock-in period, sell the remaining shares through trading in block when valuations are richer. . .
While market observers have viewed the high proportion of new issues positively, the success of IPOs involving secondary sales of shares is also seen as a sign of market maturity. This trend provides an opportunity for PE investors to exit, which frees up capital to invest in new ventures. This allows promoters to liquidate some of their holdings, which can be an incentive to list, as exemplified by HMIL.
Experts also point out that IPO valuation is closely related to secondary market valuation. Currently, price/earnings multiples in the Indian market are among the highest in the world, encouraging a growing number of companies to go public.
Looking ahead, the OFS component will dominate, as full or partial withdrawal plays an important role in the broader issue. “Large corporates will increasingly opt for OFS In terms of volume of funds raised, OFS will continue to dominate,” said Pranjal Srivastava, Partner, Investment Banking, Centrum Capital.
