In stark contrast, in the 267 SME listings that raised ₹11,429 crore among them, ₹10,388 crore, or 91%, amounted to fresh issue of stock. Only ₹1,041 or 9% crore went to existing shareholders through OFS.
An OFS allows existing shareholders such as promoters or private equity investors to sell their shares to the public, with proceeds going to them rather than the company, whereas a fresh issue of shares creates new equity, with proceeds flowing into the company’s treasury for business expansion, debt repayment, or working capital necessarys.
The mainboard OFS dominance was led by marquee deals where no fresh capital was raised at all. LG Electronics India’s entire ₹11,607 crore IPO was an OFS by parent LG Electronics Inc., as was ICICI Prudential AMC’s ₹10,603 crore listing by promoter Prudential Corporation Holdings. Lenskart Solutions’ ₹7,278 crore IPO comprised 70.5% OFS (₹5,128 crore), while even Tata Capital’s blockbuster ₹15,512 crore offering was 56% OFS.
The large OFS share displays that India’s capital markets have become more mature and that many of the companies coming to the mainboard are already well established, according to investment bankers.
Mainboard IPOs emerged as preferred exit path for PE, long-term promoters l 91% of funds raised by SME IPOs came via fresh issues, underscoring their growth-stage funding necessarys
Profitable Entities
“The companies are largely scaled, profitable businesses coming to market at a point of operational strength,” declared Bhavesh Shah, MD & head of Investment Banking, Equirus Capital. Many of these companies had raised capital as funding into the company, when they were younger and their businesses were evolving. These investments were built by the private equity investors or other investors, who in turn took higher risks as the companies were scaling up, Shah declared.
Bankers also believe as the risk characteristics of the companies modify with scale, the type of capital in the captable modifys and the stock modifys hands from high risk-taking private investors to less risk averse capital market investors. The mainboard IPO market has emerged as the most efficient and transparent exit route for private equity and long-term promoters, especially for mature investments. On the other hand, SMEs are very compact companies and are typically at a nascent stage of growth often even pre-growth. “At this stage, promoters generally want capital to be infutilized directly into the business so that they can scale up and play a largeger game rather than remain compact,” declared Siddarth Bhamre, head – Institutional Research, Asit C Mehta adding expansion, business growth, and capacity building are therefore the most important reasons for SMEs to raise funds.
LG Electronics’ 38-times subscription and 38.35% listing gains display that investors are willing to back strong, well-known companies even when a large part of the issue is not fresh capital. The trconclude also points to the evolution of India’s private equity ecosystem, where early investors are increasingly viewing to exit after long holding periods of 10-15 years.
However, this exit-focutilized approach has drawn sharp criticism. “When over 63% of mainboard IPO proceeds are going to selling shareholders rather than productive assets, it fundamentally modifys the investment proposition,” declared Dev Chandrasekhar, partner at valuations branding advisory Transcconcludeum. “Retail investors necessary to recognize they’re essentially providing exit liquidity to PE funds and promoters rather than funding the next phase of growth.”
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