Scam-hit IPO market booming again

Scam-hit IPO market booming again
R L PAI

MUMBAI, FEB 10: Four years after hundreds of shady companies raised money from the public and vanished from the scene, the initial public offering (IPO) market has started booming again. Infotech, media and pharma companies are leading the revival of the new issue market. The latest example is Geometric Software Solutions Co Ltd whose IPO of equity shares was oversubscribed by over 100 times.

While scores of companies - many have vanished while others exist only on paper - are now quoting below Rs 5, promoters are now back in the IPO market with infotech, media and pharma companies. ``Geometric has received over 230,000 applications for more than 130 million shares, resulting in the offer being oversubscribed by more than 100 times," the company said. The Mumbai-based firm launched an IPO of 1.31 million equity shares priced at Rs 300 per share on January 28. The IPO of Geometric Software, founded by privately held Godrej & Boyce Manufacturing and professional Manu Parpia, comprised an issue of 310,000 newequity shares, each of Rs 10 face value at a premium of Rs 290 and an offer for sale by some existing shareholders of one million shares at the same price.

With infotech stocks soaring on stock exchanges, new infotech companies are increasingly tapping the IPO market. Out of 24 IPOs between June and December 1999, subscriptions have gone up to over 200 times with Sibar Software Services taking the cake with a subscription level of 248 times on its Rs 2.5 crore issue. ``My only plea is that SEBI should be more vigilant this time. It should not allow a repetition of the 1994-96 period. SEBI is yet to take any concrete action against vanished companies,'' said an investor who lost money in several old IPOs.

Hughes Software's Rs 275.62 crore issue, floated late last year, was oversubscribed by almost 27 times and the Polaris Software's Rs 91.67 crore issue was oversubscribed by 20.69 times. The solitary issue in the media sector - Television Eighteen - and pharma issue - Glenmark Pharmaceuticals - too wereoversubscribed largely to the extent of 63.51 and 63.36 times respectively. Seeing the success of these IPOs, many promoters are now planning IPOs.

``After the debacle in the 1994-96 period, the primary (new issue) market seems to be on the comeback trail once again,'' said a merchant banker. SEBI hardly used to get one or two IPO prospectuses per month till the third quarter of 1999-2000. However, SEBI now gets at least three or four IPO documents - mostly from infotech, media and pharma companies - per week.

``Even then one can't call it a revival as manufacturing companies have not yet become part of the current IPO boom,'' he said. Aggregate funds raised by the IPO market are likely to surge to Rs 10,000 crore ($22.94 million) during the year ended March 2000 from Rs 4,000 crore last year. With a slew of high value new issue being lined up for offer, about Rs 6,000 crore has already been raised and another Rs 4,000 crore should come over the next two months compared to Rs 4,000 crore in the whole oflast year.

The fall-out of the boom in the IPO market is the revival of the unofficial gray market in new issues. Many companies, including TV-18 and Geometric, are quoted at a huge premium in the hitherto dormant gray market (illegal speculation in a share before an IPO is allotted and listed). Even though operators had suffered heavily in gray market operations in the 1994-96 period, many of them are back quoting three to four times of the IPO offer price.