Govt set to dominate IPO fund-raising this fiscal
Mumbai: Given its massive target for raising funds via disinvestment this fiscal and the line-up of public sector units for such share sales, the Union government looks set to become the biggest fund-raiser in the initial public offering (IPO) market this financial year.
Early estimates suggest the government could raise as much as Rs18,000 crore this fiscal through IPOs.
“The government has indicated to raise around Rs72,000 crore through various disinvestments. Of this, we estimate that approximately a fourth of this target could be met through IPOs,” said Shilpa Kumar, managing director and chief executive at ICICI Securities Ltd.
The last time the government raised such a large amount in the IPO market was in fiscal 2010-11, when it raised Rs17,970 crore, on the back of Coal India Ltd’s Rs15,200-crore IPO.
First off the line this fiscal is Housing and Urban Development Corp. Ltd (Hudco), which is launching its IPO on 8 May.
State-owned shipbuilder Cochin Shipyard Ltd too has filed its draft red herring prospectus.
Several other central public sector units such as General Insurance Corp. of India Ltd, New India Assurance Co. Ltd, and Indian Railway Finance Corp. Ltd (IRFC) have recently mandated investment banks for their initial share sales. Ten other public sector units are in the process of hiring investment banks for their respective IPOs.
This wave of government IPOs comes at a time when private sector companies too have been aggressively tapping the primary market.
Private sector firms raised Rs28,225 crore through IPOs in financial year 2016-17, according to data from Prime Database, a primary market tracker.
The surge of government IPOs is, however, not expected to impact private fundraising, said experts, given the strong inflows that the Indian market is witnessing, both from foreign and domestic investors, and relative outperformance of the Indian market vis-a-vis other emerging economies.
“With the average AUMs (assets under management) of domestic mutual funds at an all time high and growing by the day, domestic savings are clearly finding their way into markets through mutual funds. Of all IPOs in the last year and a half, domestic institutions have been the most active participants and we expect this trend to continue,” said Debasis Panigrahi, executive director-investment banking at Nomura India.Significant returns in Indian IPOs in the recent past are also attracting a lot of foreign capital to the primary market, he added.
“Out of all emerging markets, investors have got significant returns from primary listings in India in recent times. That is adding to the inflows. There is much more certainty of printing deal in these environments compared to the past,” said Panigrahi.
So far this year, foreign investors have bought Indian equities worth $6.53 billion, Bloomberg data shows.
According to Kumar of ICICI Securities, government activity is likely to boost private fundraising in the primary market. “In the past, we have seen that any fundraising activity by the government gives a boost to investor confidence. The current pipeline of government issuance will send out a positive signal to private companies which are waiting to tap the equity market.”
The quality of firms the government has picked up for disinvestment through IPOs is also expected to generate significant investor interest.
“If you look at the set of state-owned companies targeted for listing this year, most of them are market leaders in their respective space. Also, the expected deal sizes are bigger for a few of these firms, which only means better participation from tier I long-only institutional investors,” said Panigrahi.