Companies raised less money through initial public offerings (IPOs) for their own needs in 2022, with a majority of capital raised continuing to go to exiting shareholders. Offer for sale (OFS) by exiting shareholders accounted for 68.4 percent of the total amount raised in IPOs in 2022, market daily Business Standard reported. The previous year had seen 63.2 percent of IPO proceeds under OFS. Meanwhile, fresh capital going to fund a company’s business plans accounted for less than a third of the total amount raised, noted BS.
Companies raised ₹61,171 crore in IPOs in 2022. Fresh capital accounted for ₹19,358 crore while exiting shareholders accounted for ₹41,813 crore, informed the report. The amounts include both mainboard IPOs, as well as those that were part of the small and medium enterprise (SME) segment. The SME segment is for smaller enterprises raising lower amounts, while the mainboard is for the listing of larger, more mature companies.
As per the market daily, OFS accounted for 70.2 percent of the ₹59,298 crore in IPO proceeds in 2022 on the mainboard.
Since 2013, secondary share sales have largely dominated mainboard IPOs, with private equity (PE) investors using them to liquidate their holdings.
In 2021, however, the fresh issue portion improved somewhat. It comprised 36.5 percent of the funds raised through mainboard IPOs, largely due to new-age companies hitting the markets that year and in need of funds to expand their businesses, BS pointed out, adding that the sum of fresh capital raised in mainboard IPOs in 2021 was more than the previous eight years combined.
The SME segment exhibits a different trend.
Nearly ₹9 of every ₹10 raised goes to meet the company’s needs. Fresh capital-raising accounted for 90.9 percent of the total 2022 SME IPO fund-raising worth ₹1,874 crore, noted the report.
Investment bankers said "most companies using the SME IPO platform are bootstrapped, whereby the promoter holds the entire equity and there are no PE investors, unlike mainboard companies. Since they are approaching the markets, primary issuance is done."
Market players said the success of IPOs with only secondary share sales should also be cheered on as it was a sign of a mature market. They said it provided an exit to PE investors, thereby freeing up capital to be invested in newer companies. Moreover, it helps promoters liquidate some of their holdings and incentivises them to list.