Are businesses tapping the IPO market to raise funds? Or, are existing shareholders using it for enabling exits?
Since Covid, Indian companies have raised more than Rs. 2.5 lakh crores from IPOs. However, not all money raised in an IPO goes to the company.
A company can issue fresh shares, where the funds raised will be collected by the company and used towards its capital requirements. Or, existing shareholders of the company can also tender their shares in the IPO. This part of the IPO is called an Offer for Sale.
Out of the Rs. 2.5 lakh crores raised, about 63% has been the OFS component.
Is this always the case during market bullruns?
Maybe not. Between 2004-08, 90k crores was raised from IPOs, out of which only 13% was from the offer-for-sale portion.
Perhaps what has changed is the access good businesses now have to both private capital and credit in India.