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Realtors remain IPO-shy, wait for sentiment to improve

Ashley Coutinho / Mumbai 15 Feb 17 | 11:35 AM

IPO

While 26 companies rolled out Initial Public Offerings (IPOs) of shares in the last one year, real estate firms stayed away.  

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Paranjape Schemes Constructions, which had got nod last year for its Rs 600-crore IPO, let its one-year approval period lapse. 

"Property sales have been sluggish and the sector has been facing headwinds. So, firms are in wait-and-watch mode," said V Jayasankar, head, equity capital markets, Kotak Investment Banking.

Twenty companies may make offerings in 2017, of which 11 have got nod already. Of these, PSP Projects, yet to get nod, is the only realty firm. In fact, since 2012, state-owned NBCC is the only realty firm to successfully roll out IPO. 

"Developers will be keen on first exhausting the existing inventory rather than raise capital via IPO for new projects," said Pranav Haldea, managing director, Prime Database. 

Haldea added the only exception may be companies with private equity and venture capital investors. "Even in these cases, investors as well as promoters would rather want to wait till sentiment improves," he said.

According to Knight Frank, sales of residential realty units are at a historical low after note ban, with developers refraining from new launches and buyers turning cautious.  The outlook for 2017 is dismal. "With consumers in wait and watch, demand could be subdued due to a mindset that property prices could fall along with a substantial lowering of home loan rates," says Knight Frank.

"Valuations of listed realty firms are much below their peak or their IPO issue price. So unlisted firms will not be much enthused," said Girish Jain, executive director, KJMC Corporate Advisors. 

Between 2005 and 2017, as many as 30 realty companies withdrew offer documents or let them lapse. Emaar MGF Land withdrew its document twice in 2010.  

Of 20 realty companies that rolled out IPOs between 2005 and 2016, as many as 16 are in the red. Of these, 13 have seen share prices erode by more than 50 per cent. DLF, HDIL, and DB Realty, which managed to collectively raise more than Rs 12,172 crore, have seen their share prices erode by more than 70 per cent each. 

In the past two months, 17 firms from various sectors saw their one-year approval periods lapse. Disagreement on valuations, poor financial performance and uncertainty in market are possible reasons these firms have not been able to hit the market. 

A company gets one year to roll out IPO after regulatory clearance. Companies wanting to tap the market after the one-year period need to refile the prospectus with the regulator for fresh approval.

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