Mumbai: In spite of a depressed market, at least two companies are coming up with public offerings, reflecting the difficulty in raising loans.
Gemini Engi-Fab Ltd, a Mumbai-based firm with revenues of Rs23.26 crore in the fiscal year that ended March, will enter the market on 3 February to sell equity and raise Rs42 crore.
Tata Capital Ltd, a non-banking financial company, or NBFC, of the Tata Group, is issuing non-convertible debentures to raise Rs500 crore. If the issue, which opens on Monday, is oversubscribed, it will retain additional proceeds of up to Rs1,000 crore, the company said.
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In fact, it is after 12 years that a private company is retailing bonds or debentures. In September 1996, three firms —Larsen and Toubro Ltd, Arvind Mills Ltd (now Arvind Ltd) and Tata Iron and Steel Co. Ltd (now Tata Steel Ltd)— raised money through this route.
Analysts said such bond issues are the best way for cash-strapped firms to raise funds, given the current liquidity squeeze. “This is a groundbreaking event,” said Kevan V. Watts, president, DSP Merrill Lynch Ltd, a financial services firm. Watts flagged off the first roadshow for Tata Capital’s issue on Thursday.
Prithvi Haldea of Praxis Consulting and Information Services Pvt. Ltd, which tracks the primary market, said more corporate bond issues are on the way, with Gujarat International Finance Tec-City trying to raise Rs8,000 crore and State Bank of India raising Rs500 crore. India Infrastructure Finance Co. Ltd too plans a bond issue, but is yet to finalize the amount it wants to raise.
Debentures are considered safer because, besides the interest, an investor’s principal amount is secured against a firm’s assets. Tata Capital is offering a 12% interest, while most of the banks are currently offering about 9% on fixed deposits.
Gemini Engi-Fab, however, is an exception, analysts said. “The Gemini equity issue is a one-off,” said Haldea. “They would have got some comfort from institutional and high net worth investors, as retail investors are unlikely to be swayed by an equity issue.”
Others said the market is not quite ready for equity issues.
“That (Gemini) is a relatively small issue. Primary markets for equity is not happening very soon, as it can pick up only after market sentiments improve and appetite among foreign investors increases for them to participate,” said Amulya Goyal, associate, Citigroup Global Markets India Pvt. Ltd.
Though markets regulator Securities and Exchange Board of India, or Sebi, last month increased the shelf life of equity issues—the date from its approval to actual selling—from three months to a year, there haven’t been many takers.
So far in 2009, only three firms have sought Sebi’s approval for a public offer. In 2008, 28 initial public offerings, or IPOs, were made, with 137 still in the pipeline.
In comparison, in 2006 and 2007, when the 30-stock benchmark Sensex index on the Bombay Stock Exchange started its climb to touch an all-time high of 21206.77 points in January last year, 95 and 105 firms respectively, went public.
In 2006, Rs24,930 crore was raised this way, and the year after saw firms garnering Rs39,370 crore. Last year, IPOs raised only Rs19,424 crore.
Gemini, a maker of process equipment in Gujarat for oil refineries and petrochemical plants led by 61-year-old entrepreneur D.J. Panchal, is entering the equity market to expand manufacturing capacity to at least 100 tonnes of large equipment from 25 tonnes.
Gemini may have to try harder to attract investors who saw their money shrink when the high price-multiples they paid for companies such as Reliance Power Ltd and Future Capital Holdings Ltd, among others, collapsed with the market.
Sharad Rathi of Almondz Global Securities Ltd, lead manager to the Gemini issue, said the heady days of 14-15 multiples are gone. “Only issues with 7-8 multiples will pass through,” he said.
Tata Capital, on the other hand, is looking to expand its reach in consumer, auto, personal and small and medium enterprise finance. NBFCs typically reach out to banks and mutual funds for financial needs, but the current lack of credit has forced its hand.
Praveen P. Kadle, managing director of Tata Capital, said that retail bonds are the way to go forward for companies strapped for cash. “Every company requiring funds should try this route,” he said.
Graphics by Paras Jain / Mint