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 shares. 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 the proceeds going to them instead of the company, while a fresh issue of shares creates new equity, with the proceeds flowing to the company’s coffers for business expansion, debt servicing or working capital needs.
The OFS dominance on the motherboard was led by large deals that raised no new capital at all. LG Electronics India’s entire IPO worth ₹11,607 crore was an OFS of parent company LG Electronics Inc., as was ICICI Prudential AMC’s ₹10,603 crore listing by promoter Prudential Corporation Holdings. Lenskart Solutions’ IPO worth ₹7,278 crore included 70.5% OFS (₹5,128 crore), while even Tata Capital’s blockbuster offering worth ₹15,512 crore was 56% OFS.
The large OFS stake shows that Indian capital markets have matured and many of the companies coming to the main board are already well established, investment bankers said.
AgenciesMainboard IPOs emerged as the preferred route for PE, long-term promoters l 91% of funds raised by SME IPOs came through new issues, highlighting their growth-stage financing needs
Profitable entities
“The companies are largely large-scale, profitable businesses that are entering the market at a point of operational strength,” says Bhavesh Shah, MD and Head of Investment Banking, Equirus Capital.
Many of these companies had raised capital to finance the business when they were younger and their businesses were developing. These investments were made by private equity investors or other investors, who in turn took on higher risks as the companies grew larger, Shah said.
Bankers also believe that as the risk characteristics of the companies change with scale, the type of capital in the capable companies changes and the shares change hands from high-risk retail 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 small businesses and are usually in a nascent stage of growth, often even before growth. “At this stage, promoters generally want capital to be injected directly into the business so that they can scale up and make a bigger play rather than staying small,” says Siddarth Bhamre, Head of Institutional Research, Asit C Mehta. He adds that expansion, business growth and capacity building are therefore the main reasons for SMEs to raise money.
LG Electronics’ 38x subscription rate and 38.35% listing gain show that investors are willing to back strong, well-known companies even if a large part of the issuance is not new capital. The trend also points to the evolution of the Indian private equity ecosystem, where early investors are increasingly exiting after long investment periods of ten to fifteen years.
However, this exit-oriented approach has attracted sharp criticism. “If over 63% of motherboard IPO proceeds go to shareholder sales rather than productive assets, it fundamentally changes the investment proposition,” said Dev Chandrasekhar, partner at valuation brand consultancy Transcendum. “Retail investors need to recognize that they are essentially providing exit liquidity to PE funds and promoters, rather than financing the next phase of growth.”
Without new capital for growth initiatives, these companies must rely entirely on operational improvements to justify premium valuations, which is more difficult in competitive markets, Chandrasekhar noted.
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