Economic boost to speed up capital mobilisation

Bulk of resource mobilisation taken place through the privately placed debt route

Capital mobilisation by Indian industries has had a upward movement this financial year, with hopes of the country's economic growth speeding up. Total resource mobilisation through the primary market has increased 24 per cent to Rs 2.82 lakh crore in 2014-15 (till December 31, 2014). The amount raised during the same period last year stood at Rs 2.27 lakh crore, as per the Economic Survey. Bulk of the resource mobilisation, however, has taken place through the privately placed debt route.

"…Resource mobilisation through the primary market exhibited mixed patterns with equity and debt issues declining and private placements of corporate bonds increasing, on year-on-year basis. As private placements of corporate bonds account for the lion's share, total mobilisation increased during the period," the survey said.

Equity fund-raising, worryingly, has been down despite buoyancy in the secondary market. Overall equity fund raising has dropped nearly 50 per cent for the April and December period of this financial year to Rs 4,292 crore, compared to Rs 8,124 crore during the same period last year.

The survey, however, has considered only public equity issuances, which includes initial public offerings (IPOs), follow-on offers (FPOs) and rights issues. The scenario is much better if one factors in the privately-placed equity as capital raised through the qualified institutional placement (QIP) route has been robust in the past one year. A lot of companies have been able to raise large sums through the QIP route to fund their expansion requirements or retire debt.

This includes Jaiprakash Associates, Reliance Communications, IDFC, Info Edge, and Gammon Infrastructure Projects. There was a total of Rs 26,127 crore raised through 37 QIPs in FY15, according to statistics from Prime Database as of January-end.

Large-ticket IPOs, however, have been missing. A total of less than Rs 1,500 crore has been raised through the IPO route in this financial year. The average issue size has been less than Rs 250 crore, while the biggest offering has been worth just Rs 350 crore.

The financial year, however, is expected to end on a high in terms of IPOs. Public issues of at least four companies are expected to hit the market in March. Investment bankers say if the Budget is supportive and the momentum in the secondary market continues, resource mobilisation could gain more pace next year.

Pranav Haldea, managing director of PRIME, said equity would play a more dominant role in the days ahead. "Though debt shall continue to account for majority of the fund-raising, we are likely to see significant amount of capital being raised through equity, especially in comparison to the last few years. Qualified institutional placements have picked up and there is a good pipeline of IPOs which can now be seen," he said.

A recent lag in the equity fund-raising could also be attributed to more demanding standards from companies coming to the market. "Improved regulations have resulted in an increase in the thresh-hold for companies who wish to come to the market, with emphasis on greater disclosures and higher governance standards. This may act as a small headwind now but these steps are in the right direction if we look at the long term," said Haldea.

The Securities and Exchange Board of India had amended Clause 49 of the equity listing agreement. This set higher corporate governance standard for companies to adhere to including through provisions requiring greater disclosures, putting in place a compulsory whistle blower mechanism and requirements for board diversity and accountability.

The government also moved the Securities Laws (Amendment) Act 2014 to strengthen the stock market regulator.

"Vide the Act passed in August 2014 enhanced powers were conferred upon Sebi, including explicit power to disgorge ill-gotten gains, power to conduct search and seizure, explicit powers for settlement, attachment and recovery, increase in penalties, and constitution of special courts," it said.