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The IPO was undersubscribed, but qualified institutional buyers (QIBs) saved the day. Shares were issued at Rs 780 and the stock ended 7 per cent below issue price in debut trade on August 20, 2019.
Three months on, those IPO investors find themselves holding a piece of dead wood, as the stock has since fallen by half.
Reason: the promoters have done a U-turn on their promise to use part of the IPO money to cut the debt that they had taken from the company. Now they are seeking an extension for the same.
The Rs 4,500 crore IPO comprised an offer-for-sale by promoters Shapoorji Pallonji and Khurshed Yazdi Daruvala.
Some analysts blame the merchant banker for faulty pricing of the IPO, but others say investors themselves are responsible if a stock cracks after listing, as they had all the information while deciding to bet on the issue.
Commenting on the merchant banker’s role in fixing IPO price, Deepika Sawhney, Partner, Corporate Professionals, said an iBanker is appointed mainly to carry out due diligence with respect of the IPO process and to ensure that it is in compliance with the applicable laws.
“It is also supposed to ensure that the disclosures made in the offer documents and publications are correct and complete and nothing material remains undisclosed. There is no specific pricing regulation for the same,” says Sawhney.
ICICI Securities, Axis Capital, Credit Suisse, Deutsche Equities India, IIFL Holdings and SBI Capital Market were global coordinators and book running lead managers to the Sterling and Wilson Solar, while IndusInd Bank and Yes Securities were only book running lead managers.
When contacted, some of these investment bankers refused to comment.
Sebi rules require merchant bankers (MB) to disclose the performance of all the scrips for which they had acted as lead managers in the previous three years, which is then treated as a benchmark of their performance.
“This is a deterrent enough for an iBanker to not suggest unreasonable or aggressive pricing to a company even if the issue looks saleable at those prices,” says Rachit Chawla, Founder and CEO of Finway.
A merchant banker to an issue has to disclose all the details to the market regulator, including the number of issues for which it is engaged as iBanker, dates on which applications from investors were forwarded to the issuing company, number of applications received, details of application money received, amounts refunded to investors, books of accounts for a period of three years, agreement with the issuing company, and such others.
It is also duty-bound to inform Sebi about any action by RBI that it may have faced in the past.
“After listing of shares, market dynamics and investor perception determine price performance of a stock. Investors bet on an issue as per their own price judgment and advice of their advisers. Bad performance of a scrip after listing may be due to several reasons, which may or may not be directly associated with the company. A merchant banker cannot be held responsible for the market price or performance of a stock after listing, unless the same happens due to misrepresentation or false statement of facts in the offer document or in public domain,” she said.
There have also been other companies whose shares have met with similar fate in the past. They included Music Broadcast, Indian Energy Exchange, S Chand and Company, CL Education, New India Assurance, Khadim India and General Insurance, which are down more than 70 per cent from their issue prices. All these companies got listed in the year 2017.
Chawla says it is the merchant banker’s job to get the correct price at which public at large should be subscribing to an IPO.
“The main job is to ensure that the IPO is a success, as there is a huge cost involved. It will be a big setback for the company in case the IPO doesn’t get subscribed after incurring so much expenses,” he said.
The promoters owed Sterling and Wilson Solar some Rs 1,935 crore at the end of March, 2019, a fact mentioned in the IPO documents. Investors still went ahead and subscribed to the issue, falling for the promoters’ promise.
“IPO investors must find the intrinsic value of the shares and then subscribe to it. Hence, one needs to be conscious,” Chawla said.
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