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From Paytm to Nykaa, slew of IPOs are happening but who's exactly making money?

From Paytm to Nykaa, slew of IPOs are happening but who's exactly making money?

The last few years have seen the share of offer for sale portion in a public issue go up that clearly shows that promoters along with institutional investors like PE/VCs are making a lucrative exit even as retail investors might be taking a hit

Many of the early backers of companies started looking at the stock markets as an attractive exit option for their financial investments. Many of the early backers of companies started looking at the stock markets as an attractive exit option for their financial investments.

The year 2021 was a record year for initial public offers (IPOs) with more than 60 companies coming to the stock market to list while cumulatively raising around  Rs 1.19 lakh crore. The current year till August saw 18 firms launch their public issues to raise nearly Rs 41,700 crore. That's a lot of money being raised as an increasing number of companies look to move from the private market to the public one.

But, while huge amount of funds is being raised, the bulk of the money is not coming to the companies that are coming to the market, which, in turn, might have helped them expand. Much of the money is going to the shareholders of the company who are offloading their shares as part of the IPO.

Typically, an IPO comprises of either a fresh issue of equity shares or an offer for sale (OFS) by existing shareholders like private equity, venture capital, financial institutions or even the promoter entities.

Funds raised through fresh equity go to the company balance sheet while those raised as part of the OFS component go the respective shareholders that offload their holdings.

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Data from Prime Database shows that the share of OFS in the IPOs of the current calendar year is nearly 73 per cent or  Rs 30,313.26 crore of the total Rs 41,682 crore raised through IPOs in 2022 till August.

In 2021, the share of OFS was pegged at 63.50 per cent while 2020 - when only 15 companies launched their IPOs - saw it as high as 86.73 per cent. The trend of a higher share of OFS within the overall IPO pie started around 6-7 years back prior to which there was a fair balance between fresh issue and offer for sale components.

This also proves that many of the early backers of companies started looking at the stock markets as an attractive exit option for their financial investments. Interestingly, while shares of most of the companies that listed last year or even this year are trading below their respective issue prices, these pre-IPO shareholders have made huge profits as they got shares at a fraction of the issue price.

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Start-ups are the prime examples of this trend.

In the case of PolicyBazaar, Softbank arm SVF Python II (Cayman) that was one of the selling shareholders in the IPO, had acquired the shares at an average price of Rs 289.95 while the issue price was fixed at Rs 980.

SAIF III Mauritius Company acquired shares of Paytm at Rs 15.40 while Elevation Capital V FII Holdings bought the shares at Rs 77.70. Both were part of the selling shareholders when the issue price for the IPO was fixed at Rs 2,150.

Further, entities like Lighthouse India Fund III and Lighthouse India III Employee Trust acquired the shares of Nykaa at Rs 76.65 and saw the value of their investments jump nearly 15 times when the issue price was fixed at Rs 1,125.

Nykaa investments proved lucrative for domestic major JM Financial and Investment Consultancy Services as well who, as per the draft document, acquired the shares at an average price of just Rs 10.95. So, while retail investors may well be sitting on losses after investing in many of these public issues, the early backers of these digital majors and many other companies have seen the value of their investment grow manifold.

Published on: Sep 05, 2022, 2:33 PM IST
Posted by: Aseem Thapliyal, Sep 05, 2022, 2:20 PM IST