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Chemplast’s IPO underscores the dynamism of our market

The initial public offering of Chemplast Sanmar sparked heated discussions in market circles. The reason: The stock was delisted almost a decade ago for 15 yen per share, while it now has an IPO price of 540 yen.

Failing to see the reasons for the huge difference between the delisting price and the IPO price, some market experts made a lot of noise on social media. Some even wondered how the Securities and Exchange Board of India approved the IPO.

However, Chemplast Sanmar stuck to the rules during the delisting and also during the IPO process.

Delisting proposal

According to the SEBI regulation, the promoter of a company must disclose a minimum price in the event of voluntary delisting, which should correspond to the average price over the last 26 weeks from the date of the public announcement. The shareholders must use the reverse book building process to submit bids at or above the reserve price. If the price determined by reverse bookbuilding is acceptable to the promoter, he will set this as the exit price for the delisting. In the case of Chemplast Sanmar, the calculated price was ₹ 15, which the promoters accepted and continued to delist.

However, promoters can also decline the price if they think it is too high. There are cases in which a delisting did not materialize even after several attempts such as Vedanta and AstraZeneca, as investors demanded a higher premium from the promoters.

Then and now

As for IPO pricing, the face value of a share is 5 today versus ₹ 1 per share when the stock was delisted in 2012, some turning multibaggers by gaining five times.

BSE Sensex, BSE Midcap and BSE Smallcap set new highs in June 2021. Chemplast Sanmar also posted a consolidated PAT of 410 billion yen in FY21 versus a loss in 2012. If someone thinks prices are high, he or she can stay away from the IPO and get the stock at the desired price through the secondary market .

Every promoter who wants a listing, delisting or even relisting should be given the opportunity to do so via a lively market.

The seamless Chemplast Sanmar edition showed how lively our capital market is. SEBI recently made several changes to the delisting rules and the most welcome proposal is to cut the period from the previous 5 years to 3 years in case the delisted company wants to go public.

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