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Pension regulator PFRDA has said that it will not raise objections to Pension Fund Managers (PFMs) participating in new-age IPOs that are consistently making losses, but end up with huge valuation gains post listing in the market.
This has been allowed so long as the PFMs conform to the latest guidelines framed by the regulator for investment by pension funds in an initial public offering and/or Offer for Sale (OFS).
Conditions
“We have enabled our PFMs to invest in all categories of IPOs as long as two conditions are fulfilled. One is on the minimum issue size of ₹500 crore and the other is linked to the market capitalisation of 200th company in the list of top 200 stocks listed on NSE or BSE,” Supratim Bandyopadhyay, Chairman, PFRDA said on Tuesday.
The norms do not stipulate or talk about profitability track record or their dividend payouts, he clarified.
“So technically, it is up to PFMs to decide whether they want to participate in an IPO of a loss making company but [which is] getting huge valuation in the market or not. When I talk to the pension fund managers, they are also not comfortable investing in companies that are making losses and getting huge valuation in the market. But the window is now open for them to do so if they want to take a long-term view,” he added.
Bandyopadhyay said that the PFRDA’s IPO guidelines — issued on July 27— provides that investment can be made in equity shares of such companies through an IPO where the full float market capitalisation, calculated using the lower band of the issue price of the IPO, is higher than the market capitalisation of 200th company on the list of top 200 stocks of body corporates listed on the BSE or the NSE as provided by NPS Trust.
Going by this in the current market scenario, this would mean that a PFM can participate in the IPO of only those companies that command post issue full float market capitalisation of atleast ₹18,000- ₹19,000 crore, he noted.
He also told BusinessLine that so far not a single case of PFM making investment in an IPO has come to the notice of the regulator and these are early days as the IPO guidelines are only a fortnight old.
IPO market
Bandyopadhyay’s remarks on new age IPOs are significant as the Indian IPO market is now seeing a flurry of activity, and in the next 6-8 months, at least 20 new IPOs (excluding mega LIC IPO) aiming to raise atleast $10 billion are in the pipeline. Several of these IPOs are consumer tech and fintechs (most of them loss making) riding on the huge adoption of mobile internet in the country. Already this year 21 IPOs have hit the market and mobilised over ₹ 75,000 crore of capital.
Investing in start-ups
Asked if PFRDA would take special initiatives to allow pension fund monies to flow into start-ups, Bandyopadhyay said that the issue was very much on the table, but valuation poses a basic challenge, particularly since pension investments are marked to market on a daily basis and the net asset value has to be computed at the end of each business day.
In this context, putting money on unlisted start-ups is going to be a tricky issue for PFMs, he noted, given that only one in hundred may succeed.
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