India’s stock market regulator is taking more time to approve technology IPOs as it wants issuers to provide additional disclosure on their businesses to safeguard investor interests.
Bankers said the Securities and Exchange Board of India has not put a deal on hold yet, but is asking for more detailed information than usual.
India is not alone in Asia in increasing oversight of IPOs, with China cracking down on companies on concerns over access to data and South Korea holding up issues on worries over high valuations.
“The regulator is anticipating local retail and non-institutional investor interest to be very strong in technology IPOs after the Zomato issue and wants them to be fully aware of the risks as many of these companies are still loss-making,” a Mumbai- based ECM banker said.
Typically, almost 50% of an Indian IPO is sold to retail and high-net-worth investors.
“The Indian technology sector is booming and the last thing Sebi wants is a regulatory lapse,” especially since most issuers are seeking much higher valuations than in their last funding rounds, the banker said. Bankers said Sebi has asked them to give more details on the nature of the issuers’ online businesses and the associated risks on the road to profitability.
In July, food delivery company Zomato raised Rs93.8bn (US$1.25bn) through a heavily subscribed IPO, and the shares had gained 78% as of October 14 from the issue price of Rs76.
The float opened the floodgates for domestic technology IPOs, with planned deals including logistics firm Delhivery (US$1bn), payments company Paytm (Rs166bn), online financial services provider PB Fintech (Rs60bn), beauty products seller Nykaa (Rs40bn), payments bank Fino Payments Bank (Rs15bn), online pharmacy PharmEasy (US$1bn), ride hailing firm Ola (US$1bn) and hotel aggregator Oyo (US$1.13bn).
Of these Paytm, PB Fintech and Nykaa are targeting October launches subject to regulatory approval, but some bankers think there is a chance the first two deals could get pushed back to November because of the increase in regulatory oversight. Nykaa obtained regulatory approval on Thursday. The issuers are meeting potential anchor investors, and bankers working on the deals said institutional interest has been strong.
Market participants said Paytm is seeking an IPO valuation of US$25bn–$30bn compared with the most recent valuation of US$16bn, Nykaa US$5bn versus US$2.3bn, PB Fintech US$6bn compared with US$2.4bn and Oyo US$10bn–$12bn against US$9.6bn.
Room for dispute
The regulator’s call for more transparency comes as SoftBank-backed Oyo prepares to launch its IPO under the shadow of a legal battle.
The company has been in dispute with Indian hospitality start-up Zostel over a 2015 deal in which Oyo had planned to buy some of Zostel's businesses, with Zostel getting a 7% stake in Oyo in exchange. Though the deal fell through, Zostel has said it is still entitled to the stake, while Oyo says there was no definitive agreement.
Reuters reported last week that Zostel has asked Sebi to reject Oyo’s IPO application, alleging that Oyo's capital structure was not final and that its draft prospectus was "replete with material omissions”.
Oyo said Zostel's intervention represented "unnecessary and repetitive efforts to create a wrong perception".
Oyo plans to launch its Rs84.3bn IPO as early as December.
The deal comprises primary capital of Rs70bn and secondary shares totalling Rs14.3bn. SoftBank entity SVF India Holdings, A1 Holdings, China Lodging Holdings and Global Ivy Ventures are the vendors. CEO Ritesh Agarwal is the founder of the company.