MUMBAI: Dismissing the concerns in some quarters about the larger share of offers-for-sale in IPOs, which has hit a new record this year, and not fresh funding, Sebi chairman Tuhin Kanta Pandey has said the issue must be looked at from a broader capital formation perspective and that early investors exiting is a continuing trend as the investors have all the rights to get a return on their capital or pull out the money at a time of their choosing.
Stating that “money is a fungible commodity and comes at any time in the journey of a company,” Pandey said this particular debate on early investors exiting through the OFS route in an IPO has to be looked at in the context of capital formation.
“Capital formation will have different models. There is no one single model," Pandey said adding that we have the maturity to deal with eventualities. Capital of any colour should be allowed to move in any direction—into a company or out of a company at a time when the investor chooses to do so, he said while addressing the press after the board meeting last evening.
Whole-time member Kamlesh Varshney chipped in saying exit routes are necessary for investors and warned that the country will not be able to get the required investments otherwise.
Pandey further said the OFS component accounted for 51% of the money raised in initial public offerings during April-October 2024, which has gone up to 57% this year during the same period. "So to say that something exceptional has happened is also not met with facts," Pandey said.
It may be noted that last month chief economic advisor V Anantha Nageswaran went public with his concerns on the high component of OFS in IPOs, saying IPOs are becoming an exit vehicles for early investors and undermining the spirit of public markets and capital raising. Nageswaran further said the capital markets should evolve "not just in scale, but in purpose" as well.
"Our equity markets have grown impressively, but IPOs have increasingly become exit vehicles for early investors, rather than mechanisms for raising long-term capital. This undermines the spirit of public markets," the CEA had said and warned against celebrating “wrong milestones” such as market capitalisation ratios and volumes derivatives traded.
On the same day, Pandey had told reporters that he was not worried about IPOs turning into exit routes for early investors, saying they take early-stage risk. The early-stage risks in new-age companies is “high” and not every investment provides high returns. The gains in some of the investments offset the losses in others and there is “no contradiction” between the purpose of the broader primary market and PE firms making exits via IPOs, Pandey had said, adding that the successful gains in some offset the losses in others. Therefore, PE exits are a normal part of the investment lifecycle.