Mumbai: When timeshare company Mahindra Holidays and Resorts India Ltd debuted on the National Stock Exchange on Thursday at 5% above the price at which it sold shares in its initial public offer (IPO) in June, it became the first large firm in a year to list on India’s biggest equities market by trading volumes. The shares of KSK Energy Ventures Ltd were listed on 14 July 2008.
The intervening period saw a drought of new issues sold to investors, as share prices tumbled, investors fled equities and companies put capital-raising plans on hold.
Analysts and investment bankers expect that drought to be replaced by green shoots in the next few months.
The three large share issues immediately on the horizon are from Adani Power Ltd (which plans to raise between Rs2,200-3,000 crore) and follow-up offers from public sector firms National Hydroelectric Power Co. Ltd (NHPC) and Oil India Ltd (OIL), which have regulatory approvals to raise nearly Rs4,000 crore.
Analysts say a stable or a buoyant secondary market will be crucial for the health of the primary market.
If these three companies mop up more than Rs6,000 crore between them, the second half of 2009 will be the best one for sales of new shares since the second half of 2008. This compares favourably with the Rs331 crore raised by three Indian firms, including Mahindra Holidays, in the primary market in the first six months of 2009. This despite the fact that stock market regulator Securities and Exchange Board of India (Sebi) had said in December that the approvals it gave companies to issue new shares would be valid for a year as against the earlier three months.
Apart from the planned issues by Adani Power and the two government firms, 16 other companies have regulatory approvals and are finalizing plans to raise over Rs5,700 crore from investors, according to Prime Database, a firm that tracks the primary equities market. Another 16 companies, including Indiabulls Power Ltd which applied on Wednesday, have filed their draft prospectuses with Sebi for approvals. This lot wants to raise around Rs3,000 crore.
So, the IPO pipeline looks set to cross Rs10,000 crore in the next six months.
In comparison, the first half of 2008, saw 27 firms raising in excess of Rs17,000 crore. In the second half of 2008, 15 issuers raised Rs1,733 crore.
Tarun Kataria, managing director, head of global banking and markets, India, HSBC Ltd says, “The pipeline is good. We are working on a couple of deals. The foreign investor appetite is also good. And the improvement in global liquidity has helped. We saw over $5 billion (Rs24,350 crore) inflows in a single month in May.”
Institutional investors have already enthusiastically lapped up share issues by firms. Since April this year, 10 companies have collected more than Rs12,000 crore through qualified institutional placements (QIPs) sold to large investors. Another 59 firms have received consent from their boards to collectively raise more than Rs75,000 crore from QIPs.
Uday Kotak, managing director, Kotak Mahindra Group expressed confidence that things will turn for the better. “The Mahindra Holidays and Resorts IPO has brought the IPO market out of a holiday of nearly 15 months.” He recalled how Mahindra group had earlier marked the revival market with the listing of Tech Mahindra a few years ago. Kotak was book-running lead manager to the Mahindra Holiday’s share sale and partners the business group in the eponymous bank.
But analysts say a stable or a buoyant secondary market will be crucial for the health of the primary market. Prithvi Haldea, chairman and managing director of Prime Database, says, “The volatility in the secondary market place is unnerving companies. In India, you have to take a one-month call on markets, before coming up with a public issue. With this kind of volatility, where the Sensex has been moving 10% either side in matter of days, companies and merchant bankers are not prepared to take the plunge.” Sensex is India’s benchmark equities index.
The Adani IPO is to hit the market on 28 July. Dow Jones Newswires reported on Thursday that NHPC is likely to hit markets on August 7 while Newswire18 reported that OIL’s issue is likely to open a month later.
According to Sebi rules, the issuer has to announce the date of issue opening two weeks in advance. The listing happens 21 days after the offer is closed. But Haldea says the dates will come into effect only if the companies file the prospectus with the registrar of companies (RoC). “Unless they file with RoC, the dates are just speculation.”
Over 600 firms are in queue, but unless they file draft red herring prospectus with Sebi they cannot be considered to be in the game, says Haldea. The draft red herring prospectus is a preliminary document filed with the regulator.
A. Balasubramanian, chief investment officer, Birla Sun Life Asset Management Co. Ltd, says, “Post the September-December liquidity crisis, the money-raising environment has improved globally. Wherever pricing has been good, people have absorbed equity issues.”
Ashwin Ramarathinam contributed to this story.