Why has PKH Ventures decided to withdraw its IPO?

Late on the night of July 04, 2023, the issuer, PKH Ventures IPO, decided to cancel its IPO due to weak market conditions and a very tepid response to the IPO. The overall IPO got just 65% subscription till the close. While the retail portion got just about subscribed and the HNI / NII portion got marginally oversubscribed, the QIB portion really fells short. Let us first look at the break-up of the issue of PKH Ventures Ltd.

How the IPO fell short of targets

The overall size of the PKH Ventures IPO was ₹379.35 crore comprise of the above 2.56 crore shares at the upper band of ₹148 per share. However, it was the QIB portion that got grossly undersubscribed in the IPO. The final subscription update at the close of the IPO on July 04, 2023 stood as under.

As can be seen from the above table, the retail portion got almost fully subscribed while the HNI / NII portion got subscribed about 1.67 times overall. However, the QIB portion fell short with just about 11% subscription, showing absolute lack of interest. As a result, here is how the overall IPO response looked like.

• Against the proposed issue of 2.56 crore shares, the company could only get valid applications for 1.67 crore shares.
   
• Against the total issue size of ₹379.35 crore, the IPO got valid response from investors only to the tune of ₹247.54 crore.
   
• The real problem was the QIB portion that had a 50% allocation. This segment only got about 11% response in the IPO.

What does the rule book say on IPO subscriptions?

According to SEBI rules pertaining to IPOs, the IPO must get not less than 90% response to the IPO in the form of subscriptions. IF that is not achieved, then the issue has to cancelled and all the monies have to be refunded to the investors  fully, with no costs charged to them of any kind. There have been occasions in the past where the retail or the HNI portion has been undersubscribed. However, in such cases, if the overall issue has got more than 90% subscribed, then the issuer can reallocate the additional shares to the other categories. However, in the case of PKH Ventures, the response overall was just 65% with the QIB response at just about 11%. Clearly there was not way the issue could go ahead and had to be called off. In fact, the day-wise subscriptions hint that the issue response could never pick up too much.

Even on the last day, there was hardly any traction for the issue, which eventually led to the cancellation of the IPO.

Why do issues get undersubscribed?

There are several reasons why some issues get undersubscribed. For instance, the IPO of ICICI Securities in 2018 did not get full subscription as did the IPO of Hindustan Aeronautics Ltd (HAL). Recently, the Mankind Pharma Ltd IPO which did extremely well after its listing, did not manage to fully get its retail portion subscribed. Such undersubscription can happen due to various reasons.

Normally, when there is a perception about the quality of the IPO or about the pricing, there could be tepid response. Also, if the market conditions are not too favourable, then the response to the IPO can be quite tepid. This normally not in the control of the issuers or the merchant bankers. There are also cases when the Merchant bankers may not have tried to market and push the issue to institutions very aggressively and that may have resulted in a tepid response to the IPO. Quite often, the actual reason is a mix of all these. While, there is not much of a financial hit to the company due to the cancellation to the IPO, it is true that it does hit the reputation of the company in the capital markets and also forces them to put their funding plans on hold.