SEBI sounds alarm on crowding of IPOs

The Securities and Exchange Board of India (SEBI) has expressed concerns on bunching up of initial public offerings (IPOs) this week and has asked investment bankers to be wary of the stress it could put on the infrastructure for intermediaries, particularly IPO registrars, said two people familiar with the matter.

The regulator had issued a similar alert over bunching up of public share sales in March 2021 and had asked intermediaries to ensure there were no system glitches while processing applications, and to stagger the offerings as much as possible.

Five issues

IPOs from five companies – IREDA, Tata Technologies, Gandhar Oil Refinery, Flair Writing Industries and Fedbank Financial Services – have hit the market this week. Together, these firms are looking to mop up over ₹7,000 crore.

The IPO allotment process is carried out by the registrar of the IPO. All the five IPOs are being handled by registrar Link Intime India.

A high number of applications and the shift to a shorter timeline for listing could put pressure on the system, said experts. Although listing shares on T+3 is not mandatory at present, at least a dozen companies have opted for this timeline in the recent past. 

“Bunching up could be a concern, particularly when a large number of applications are involved. The five issues this week are expected to receive over 1 crore applications, which is a large number. While the processing is all electronic because of online bidding, things could slip up if there are issues of reconciliation or if wrong credit is given,” said a senior investment banker.

 Tata Technologies and IREDA have seen over 50 lakh and 30 lakh applications, respectively. 

All applications are uploaded on the exchange software. These are then consolidated, post which allotment is done. The registrar also has to pick information of the applicant from NSDL and CDSL based on the PAN.

Also read: Tata Tech, Gandhar Oil, Flair Writing IPOs sell like hotcakes

“It’s a high volume work but i am sure the registrar has done its soft testing,” the banker said.

Market observers said the regulator is unlikely to get into any sort of micro-management about IPO timelines in the future.

“It’s not that investment bankers are working in a vacuum. We do discuss the timelines with banks and registrars before an issue hits the market. But sometimes bunching up of issues is unavoidable as the decision to come to the market is dictated by market conditions, investor appetite, regulatory approvals and their expiry,” said Venkatraghavan S, Managing Director, Equirus Capital.

T+3 transition

He added that the transition to T+3, which becomes mandatory from December 1, has been reasonably smooth and the process will only smoothen further as the pain points are identified and addressed.

An email sent to SEBI and Association of Investment Bankers of India, and a text message to a Link Intime official did not get a response.

The bunching up does not seem to have dimmed the appetite for the IPOs, with four of the five offerings getting a robust response. Market observers attribute this to domestic liquidity, reasonable valuations and listing gains for the majority of offerings this year.