The Primary markets have been in a bad shape. There have been no issues now since the September bunch of issues which hit the market and knocked the steam out of the markets completely. Even the issues whether IPO or FPO from the Government seem to be stuck and for some reason or the other have not been hitting the market. The quality of issues had become so bad that it forced SEBI to take action and act against seven companies, promoters and its merchant bankers. Action against this group of people clearly reflects on the quality of issues, and the extent of deterioration that has happened in the issues hitting the market.

Goodwill Hospital and Research Centre Limited launched its issue on the 30th of December and the issue was open for a record seven working days creating a record for itself. The issue was scheduled to close on Monday the 9th of January. There is no doubt that market conditions were certainly not conducive to an IPO opening and the fact that the SEBI order on IPO’s came a day earlier than the issue was to open certainly did not help matters. The only reason one can attribute to the issue being opened at the time it did was to avoid submitting fresh audited accounts which need to be no more than six months old when any issue opens. In the case of Goodwill audited accounts upto 30th June formed part of the RHP and therefore the issue had to compulsorily open by the 30th of December.

Well the issue opened and at the end of six trading days the total subscription received was a mere 22,015 shares against the issue size of 35,42,857 shares. The subscription was less than 1% and stood at 0.62%. In the last two decades that I have been associated with the stock market, I do not remember any company which has fared so poorly. Even issues which have not been subscribed have done significantly better than what we saw with this issue.

Looking at it in hindsight one wonders whether the decision to go ahead was correct or not. Clearly it backfired and made no sense. The company and the promoters are big losers post this debacle. The group had an ambition post this issue to tap the markets for its Aviation and NBFC company issues. Very clearly post this performance this would be extremely difficult. Secondly the stigma of having done so badly would always be at the back of the mind of any investor whenever the issue makes a comeback. Thirdly the document would have to be refilled which means that the company would have a waiting period of a minimum six months before it can tap the primary market again. This is because a fresh document would have to be prepared and submitted and would have audited accounts for a later date.

In terms of expenditure there has been a colossal wastage with all the stationery, advertising expenses just going down the drain. The failure of the issue would also be a big setback for the merchant banker as this issue would be added to his track record.

In a bad primary market which has not seen any issues for over three months, the opening and the complete disaster of such an issue is a major setback for the markets. It may take quite some time to recover from this.

SEBI Chief U.K.Sinha has said over the weekend that investigation in IPO’s is continuing and another order should be coming in due course of time. One hopes that the first order and the one to follow act as a strong deterrent for market intermediaries and promoters and the present crop and modus operandi of these people in IPO’s just stops. Until and unless this system is stopped, the present state of the primary market is unlikely to improve.

Leaving aside the negatives let us now look at the brighter side of things. With equity issues having simply dried up people are now looking at debt issues. We have had very successful Tax free bond issues from NHAI which issued bonds for a cumulative value of Rs 10,000 crs and the issue received excellent response. The final figures would be known in a day or two but it is believed that the issue raised somewhere in the vicinity of Rs 30,000 crs with the QIB portion subscribed about six times. The retail portion was under subscribed with the segment having reservation for 3,000 crs.

The second tax free bond issue was from PFC (Power Finance Corporation) which was for a size of a little over Rs 4,000 crs. Here again the issue for QIB’s and HNI’s was oversubscribed on day one and the retail portion also subscribed by the time the issue closed. These bonds are likely to list at a premium as the interest rates seem to be softening marginally and certainly seem to have peaked out currently.

The tax free bond issues are not over as yet and two more companies are likely to open their issues in the coming fortnight but before the end of January. IRFC (Indian Railway Finance Corporation) will launch its issue for Rs 6,300 crs while HUDCO would do so for a shade under Rs 5,000 crs.

There are other bond issues presently open which have a tax break under section 80CCF. A number of infrastructure companies are offering these bonds. Some of the issues currently open include names like SREI, L&T Finance, IDFC and REC. These bonds offer a tax rebate on a maximum of Rs 20,000 and have a minimum lock-in of 5 years. Safety of bond holders or subscribers is ensured with a buyback option after five or seven years.

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