Pricing worries remain, but bankers expect IPOs to raise over Rs 40,000 crore in the next few months.
For the primary markets, the fireworks are expected to begin after Diwali with merchant bankers expecting initial public offerings (IPOs) to raise at least Rs 40,000 crore in the second half of the year.
Add to that the qualified institutional placements (QIPs), another favourite route to raise money, and the final figure could be much higher.
Sanjay Sharma, MD, Equity Capital Markets at Deutsche Equities India, said with the economy showing signs of revival, India Inc will need money for growth and to strengthen their balance sheets. So they will tap the primary market through IPOs, follow-on offerings and QIPs.
|IPOS SINCE JUNE ‘09
|Jun 4, ‘09
|Jun 23, ‘09
||Mahindra Holidays & Resorts India
|Jul 14, ‘09
|Jul 20, ‘09
||Raj Oil Mills
|Jul 28, ‘09
|Aug 7, ‘09
|Aug 27, ‘09
|Aug 31, ‘09
|Sep 7, ‘09
|Source: BS Research Bureau (in Rs cr)
Power companies such as GMR Energy, Indiabulls Power and JSW Energy are expected to lead the charge along with public sector companies such as Bharat Heavy Electricals and NTPC. Today, Reliance Infratel also announced its intention to raise Rs 5,000 crore from the primary markets.
Ravi Kapoor, MD of South Asia Capital Markets at Citi, says he expects many more IPOs and QIPs in the coming months.
A Prime Database study found that public sector companies benefit a great deal when they get listed on the stock markets. In fact, four of them — Power Finance Corporation, Power Grid Corporation, Rural Electrification Corporation and NTPC — made valuation gains of up to 200 per cent after they were listed.
Many say the rush of companies tapping foreign institutional investors for QIPs will also increase, with several big-ticket deals expected shortly. While Axis raised a sizeable amount this week, Aditya Birla Group company Hindalco has also joined the queue with a $500-million issue.
There are about 60 others waiting for an opportune moment to tap this relatively easy way of accessing FII money.
Although the future looks bright on the primary markets front, there are some worry signals as well. For example, most of the IPOs so far received enthusiastic response but the stocks’ performance has been lacklustre after listing. Several of them are trading at a discount to the issue price, raising concerns over whether the issues were priced right.
After NHPC’s subdued listing and subsequent performance on the market, many said the issue could well have been overpriced — a reason retail investors were not so enthusiastic about the Oil India offer. High net worth individuals also burnt their fingers in the previous IPOs, being unable to meet IPO financing requirements.
The OIL issue was subscribed 54 times, but retail investors bid just 1.14 times – a concern that has led many bankers to say careful pricing is important for companies to avoid a sell-off, especially as the economic climate remains uncertain. Prithvi Haldea, chairman and managing director of Prime Database, says there are apprehensions and caution in the IPO market because some of them did not generate large scale retail subscriptions.
“But this may change in the future because there is a strong IPO pipeline of good companies that are expected to hit the markets during this year or early next year,” he says.
Citi’s Kapoor added that issuers should expect reasonable valuations, but investors should understand the risk associated with the equity investment and look at medium to long-term only for returns.
However, Pramod Menon, JSW Energy’s CFO, says the company isn’t concerned about pricing its issue, because the earlier power IPOs received excellent response from FIIs and long-term investors. “Companies like us have a good portfolio of existing generating projects and a good pipeline of power projects that will be commissioned in near future. So we hope that our IPO will generate good response and there is no apprehension at this point of time on our plans.”
On QIPs, the rush seen a couple of months ago had lost steam mainly because of Sebi’s decision to fix a floor price for such issues. When prices are stable, it is likely that the average price may be higher than the floor, creating a mismatch: investors won’t put in money if the prevailing market price is lower than the price according to the Sebi formula.
An investment banker says he knows at least 10 companies that were unable to complete QIPs due to unfavourable pricing. There are also many examples of companies expressing the intention to raise Rs 500 crore, but ending up with just Rs 200 crore. But companies now have come to terms with the new formula and are finding ways around it, he says.
Many players are also expecting more structured products given the fact that the market is maturing. One of them could be non-convertible debentures with warrants. HDFC, for example, raised Rs 4,000 crore through this product recently and its warrants are traded at a premium on the stock markets.