Euro crisis may trip fundraising plans; hurt confidence, exports

The euro zone crisis could trip the fundraising plans of Indian companies at home and abroad and dent confidence, while euro’s weakness will hurt exporters selling in the currency.

Analysts fear the crisis in the euro zone would impact equity markets worldwide, including India, and companies may be forced to defer fundraising plans.

Volatile markets have already forced companies to tread with caution. According to Prime Database, there are 28 companies which have received approval to float IPOs, including Reliance Infratel and Emaar MGF, but have not yet announced their dates. There are another 45 companies that had filed offer documents with the market regulator, Securities and Exchange Board of India, till the end of April.

Prithvi Haldea, CMD, Prime Database, said: “Conditions are not stable. Valuations are not forthcoming. Institutional investors are driving a hard bargain. The euro crisis makes the job difficult. It will impact world markets, including India.”
 

COMPANIES SITTING ON THE FENCE SEBI APPROVAL RECEIVED, APPROVAL STILL VALID
Company	Date of  approval	Estimated  Issue Amount  (Rs crore)
Reliance Infratel Ltd*	11/1/2010	5000
Lodha Developers Ltd	21/01/2010	3000
Ambience Ltd	4/2/2010	1300
Emaar Mgf Land Ltd	18/02/2010	3850
Glenmark Generics Ltd	8/3/2010	570
Oberoi Realty Ltd	9/3/2010	1000
Sterlite Energy Ltd	5/4/2010	5100
*Refiled                                      Source: Prime Database

On Wednesday, the Essar Group called off its $750-million bond issue amid rising investor concern over Europe’s debt crisis. Essar Energy, which had raised $1.95 billion on the London Stock Exchange, dropped 7 per cent on Tuesday’s conditional trading.

What CFOs are worried about is that the uncertainty in global markets could dent corporate confidence. “The risk aversion is coming back and investors are moving towards caution,” said JSW Steel deputy MD & CFO Seshagiri Rao.

Meanwhile, a weaker euro is worrying exporters. The euro tumbled to a 14-month low against the dollar on Thursday, reeling from escalating concerns that Greece’s debt crisis may spread to other euro zone states.

The euro fell as low as $1.2737, according to electronic trading platform EBS, its weakest since March 2009, as investors awaited any comment from the European Central Bank on how it was prepared to help prevent contagion from Greece.

The euro has sunk 12 per cent against the rupee, depreciating to Rs 57.90 on Wednesday from the Rs 66 level three months back.

Rajendra Hinduja, CEO, Gokaldas Exports, said it would hit his Europe business in a big way. Europe accounts for 30-35 per cent of its exports, though 40 per cent of which is denominated in euro and the rest in dollars.

What worries him more is that buyers are going slow. That’s because even if they buy goods in dollars, they will have to shell out more euros for every dollar, as the currency has depreciated against the US dollar. This creates uncertainty for the future (Gokaldas has order books for three months), as buyers may go slow till there’s stability.

What’s more, the outlook on the euro continues to be bearish, said Subramanian Sharma, director, Greenback Forex Services. “The stop-losses are getting triggered. People who had gone long on the euro are unwinding their positions,” he said.

A weaker euro would also hit IT exports as many companies had pegged their exports to Europe in euro. This would hit profits and companies are trying to counter it by taking hedges. While exporters would take a hit, businesses that import from Europe could gain.