And we expect corporate governance...

Hummingbird (HB) came across this news item (Rush of IPOs to beat SEBI results norm, Business Line, Sep 18, 2010) that says there are 12 issues coming this month to raise Rs 4,000 cr.  The highlight of the news item is this -

A SEBI directive and a soaring secondary market have led to a flurry of initial public offerings aimed at making it before September 30.

Some Rs 4,000 crore will be raised through 12 IPOs that are being pushed through during this period. Since September 14, any given day of the month has seen at least two ongoing IPOs to date, and the rest of the month is going to be no different, at least until September 27.

"A big reason for this flood of offerings is because of the September 30 deadline set by SEBI," said Mr Sanjay Jain, Executive Director and Head of the Investment Banking Division at JM Financial Consultants. SEBI has said that if companies have issuances that hit the market after September 30, then they will have to publish their June quarter results. Those that enter the marker before that can file the DRHP with their March-end annual results.

What is interesting is that the June quarter results of many of the listed companies were below expectations, and that of yet-to-list companies are likely to be the same, said analysts. It is not a surprise then that they don't want to raise funds using their June quarter results.

The message is contained in the last sentence of the above para - companies don't want to raise funds using their June quarter results.  But why?  Because, the June quarter results of many of the listed companies were below expectations, and that of yet-to-list companies are likely to be the same, said analysts.

Corporate governance philosophy of Infosys is based on the seven principles, out of which the first two appear relevant in this situation -

1. Satisfy the spirit of the law and not just the letter of the law. Corporate governance standards should go beyond the law.
2. Be transparent and maintain a high degree of disclosure levels. When in doubt, disclose.

HB doesn't want to comment on any individual company which is raising funds.  But HB cannot help wondering about corporate governance... these are the companies which ab initio wants to do something wrong (though they are within the boundaries of law) and we the common man expect them to behave properly and follow good corporate governance practices post listing.  Are we day dreaming?

Venture capitalists are licking their wounds—and their lips

VC funds invest with a longer term investment horizon and returns to their limited partners (LPs) are not possible unless they exit from their investments.  Attractive returns serve as incentives to the LPs to contribute to future funds floated by VC firms.  While India has never seen more than 20 VC exits in a year - in the first three months of 2010 alone, there have been 10 VC exits (against 3 last year) and analysts see at least 50 exits in the next six-nine months reports Mint.  Attractive exits through IPOs would help establish India as an investment destination for VC / PE funds and the trend in both US and India appear similar with many VC / PE firms waiting to exit and the market also supporting IPOs of VC / PE funded companies.  Highlighting the US scenerio, The Economist reports:

In the first quarter of the year there were almost as many IPOs of venture-backed firms as in all of 2009 (see chart). At the end of March another 43 venture-funded businesses had registered with America’s Securities & Exchange Commission to go public. Encouraging stuff, though some fret that any hiccup in equity markets could scupper these plans.

Source:  The Economist

In the US, while the tough fund-raising environment is forcing more and more VC firms to close down their activities, Steven Kaplan of the University of Chicago’s Booth School of Business and Josh Lerner of Harvard Business School in a recent paper entitled “It Ain’t Broke: The Past, Present and Future of Venture Capital”, point out that VC funds raised when capital is scarce have outperformed those put together when VC firms were flush with cash. Looking at the increase in valuation, VC firms with money to invest, worry about how to get into deals while the rest worry about exiting from the investments already made before the markets tank again.