Securities and Exchange Board of India (SEBI) chairman Ajay Tyagi has flagged that the newly-listed tech companies are using their initial public offerings (IPOs) to facilitate exits for the existing investors. He added that SEBI will soon alter regulations for listing of such companies.
Speaking at an event organised by the Association of Investment Bankers of India, Tyagi said, “Recently, there has been an increasing trend of new age tech companies also known as Growth Companies coming out with their IPOs.” He added that such firms “access capital markets both to provide exit to existing investors and to fund their growth ambitions.” Tyagi further stated that these non-traditional companies pose additional regulatory challenges.
He also acknowledged the increasing trend of new-age tech companies (growth companies) coming out with their IPOs. Speaking at an event organised by the Association of Investment Bankers of India, Tyagi said such companies are characterised by significantly different business models and are asset light in nature. The year 2021 saw a surge in IPOs as startups like Paytm, Zomato, Nykaa and Policybazaar launched their public issues and made their debut on the exchanges.
“Recently, there has been an increasing trend of New Age Tech Companies also known as Growth Companies coming out with their IPOs. Such companies are characterised by their significantly different business model and are asset light in nature,” he noted.
“In 2021-22, out of the 23 IPOs on the Main Board with issue size over Rs 1,000 crore, five were by companies with non-traditional business models. Such companies access capital markets both to provide exit to existing investors and to fund their growth ambitions,” Tyagi added.
The SEBI chief further underscored that these non-traditional firms throw new regulatory curveballs and that having an appropriate regulatory framework for listing of these companies is important to attract fresh investments in startups via the PE/VC route. The year 2021 has not only witnessed a record surge in IPOs but also the birth of a record number of unicorns.
He also mentioned that new-age tech companies are in a loss-making space at the time of listing at the bourses. “Typically, the new age tech companies are loss making at the time of listing and the extant regulatory framework acknowledges that. Going forward, based on experience gained and stakeholders’ feedback, there would be learnings and the need for appropriate tweaking of regulations,” Tyagi said.
The SEBI boss also stated that the Indian stock exchanges – BSE and NSE ranked seventh in terms of the number of IPOs and eighth in terms of IPO proceeds globally.
The SEBI boss further noted that till November this year, 348 issues have raised around Rs 1.8 lakh crore via equity securities, of which 76 IPOs raised over Rs 90,000 crore.
“Till November 2021 of 2021-22, 348 issues have raised around Rs 1.8 lakh crore through issuance of equity securities, of which 76 were IPOs that raised more than Rs 90,000 crore. In just eight months, the IPO proceeds almost trebled compared to the level for the previous whole year. The average size of IPOs has also grown from about Rs 350 crore during 2019-20 to about Rs 1,200 crore in this financial year,” Tyagi said.