Fund raising via QIP hits eight-year high; banks lead

Fund raising via the qualified institutional placement (QIP) route hit an eight-year high, with more than a dozen companies already raising around Rs 34,000 crore in first six months of the current calendar year 2017 (H1CY17).

Thus far in CY17, 14 companies have collectively mobilised Rs 33,907 crore from investors - the highest amount in the past eight years. Earlier during the entire CY09, as many as 53 companies had raised Rs 34,676 crore via QIP. In CY14, total 33 companies mobilised Rs 31,684 crore, according to PRIME Database. In 2017, banks have thus far dominated the QIP fundraising route, raising over Rs 28,900 crore. 

"The bull run has fuelled a money raising frenzy among corporates, who are making use of the market condition to raise funds for future growth. Besides, the rally has ensured that the cost of raising funds / equity is reduced considerably. Promoters, on their part, are making full use of this opportunity," says G Chokkalingam, founder and managing director of Equinomics Research & Advisory.

The total amount raised through QIPs in CY17 represents a 64-fold increase from the same period last year. In the first six months of CY16, four companies had raised Rs 529 crore, while total 16 firms mobilised Rs 4,712 core during entire previous calendar year.

"A lot of companies that are eyeing growth in their businesses and believe the euphoria / market optimism may not be sustainable forever, are preponing their capital raising plans. As a result, we have seen bunching of a lot of QIPs," explains Munish Aggarwal, director - capital markets at Equirus Capital.

THE ROAD AHEAD

The pipeline, too, is robust and comprises issuers from the private sector and banks that have announced QIP plans to raise additional capital.

Around half dozen companies have already approved to raise funds to the tune of around Rs 25,000 crore, via QIP/ Global Depository Receipts (GDR) / American Depository Receipts (ADR) route as companies eye growth and expansion opportunities amid an improvement in the overall market sentiment.

Among banks, State Bank of India (SBI), earlier this month successfully concluded India's largest ever QIP of Rs 15,000 crore, while Federal Bank raised Rs 2,500 crore in the current week.

"If we look at the sectoral break-up, the fund raising has largely been driven by banks. Banks - both from a balance sheet clean up perspective as well as preparing for the growth which people are expecting should come through - are preparing themselves for growth," adds Aggarwal of Equirus.

Illustration by Binay Sinha

Federal Bank, for instance, plans to use the proceeds of the share sale to grow its loan book and augment its Tier I capital to support growth plans and to enhance the business of our bank. The QIP will be the banks' seventh this year.

Market participants, analysts say, have already factored in a possible delay in pick-up in corporate earnings, given the non-performing asset issue and the implementation of goods and services tax (GST) bill.

"The GST implementation will impact growth as well as throw the supply chain into a turmoil - two things that most market participants have already factored in to their estimates. As a result, they are now looking at FY19 multiples and not FY18, which they feel will be transitory," Aggarwal says.