Metal firms may have to wait longer to raise equity

Metal producers’ earlier plan to raise funds through equity issues may get delayed, as the flush of liquidity has slowed and the market has turned weaker. Sterlite Industries, JSW Steel, Hindalco and Tata Steel together plan to raise about $5 billion through different equity issues.

According to investment banking sources, Tata Steel’s top management team returned disappointed from Singapore and Hong Kong early this month, due to lukewarm response from investors for the GDR they had been contemplating.

Although the company has not made any announcement about its fund raising plan, managing director B Muthuraman did not rule this out at an industry conference in New Delhi last week. The company may raise up to $1 billion to bring down its debt level, which stands at $9 billion.

“The recent flow of QIPs was driven by a pent-up pipeline of issues in the last 12 months before the elections,” said Chetan Savla, Executive Director, Kotak Investment Banking.

The Sensex, the benchmark index of the Bombay Stock Exchange, rose 24 per cent from the day before the general elections result to the announcement of the Union Budget in the hope of reforms which had got delayed in the earlier regime of the Congress government. The rise in stock prices led to about 15 companies, including real estate firms, raising about Rs 17,240 crore through QIPs in the past three months.

The hopes were high, as the finance ministry’s economic survey had talked of raising at least Rs 25,000 crore annually from selling minority stakes in government enterprises. Companies hoped for better valuations after the Budget announcements, leading to possible turnaround in the industry. However, a week after the Budget, the Sensex was down by 11.2 per cent, to 13,400 on Monday. The Sensex recovered by 6.3 per cent to 14,253 in the last two tradings.

“The ability of companies to raise equity through the QIP route is primarily driven by the stock fundamentals, and the overall market sentiment in the period of around a week before the launch of the transaction,” said Savla.

Hindalco Industries, which got an enabling resolution to raise $500 million through a QIP, is waiting for the capital markets to improve. “We have not fixed any deadline for the issue. It all depends on the market condition and the valuations we get,” said a company executive.

“Tata Steel, JSW Steel and Hindalco have all got their debt covenants reset and need to bring down their debt level; but the QIPs or GDRs are not going to be as quick as it was till last month,” said an analyst with a foreign brokerage.

JSW Steel is currently meeting investors in the US for its proposed $1-billion QIP. The company has Rs 14,500 crore consolidated debt on its books and plans to repay it partly with the QIP money.

The rush for QIP is not only from the companies which are under pressure to meet the debt covenants but also from cash-rich companies such as Sterlite Industries, India’s largest copper producer. The company has over Rs 9,000 crore on its books on a standalone basis.

“We have always believed in raising money when it is available, but we are not in a hurry,” said a company executive who did not wish to be quoted.