Mumbai: The new fiscal year will be India’s best-ever for raising money through public issues, investment bankers predict.
The Indian industry is likely to raise $30-35 billion (Rs1.34-1.56 trillion) through public sector divestment, initial public offerings (IPOs) of more than 50 companies that have filed draft offer documents with the capital markets regulator, and follow-on public offers (FPOs) of listed firms.
In 2009-10, Indian companies raised Rs46,778 crore, or a little over $10 billion. Despite the economic slowdown, this was several times more than the Rs2,034 crore raised in the preceding fiscal year.
“This fiscal we expect $20-25 billion of equity and equity-linked capital to be raised by the Indian private sector, primarily through listings by way of IPOs, follow-on issuances, monetization through blocks and tapping the offshore markets with products like convertible bonds, GDRs (global depository receipts) etc.,” said Ravi Kapoor, managing director and head of South Asia capital markets origination at Citigroup Global Markets India Pvt. Ltd. “Additionally the government is expected to raise around $8-10 billion this fiscal,” he added.
Three other leading investment bankers Mint spoke with agreed Indian firms are likely to raise around $30 billion this fiscal year.
Graphic: Paras Jain/Mint
Kalpana Morparia, CEO of JPMorgan Chase and Co., said the deal pipeline would include $8 billion in government divestment, $12 billion in IPOs and $15 billion in FPOs, in an interview to CNBC-TV18 and published in Mint on 6 April.
Saurabh Tripathi, partner and director at Boston Consulting Group (BCG), said firms need a lot of money to build manufacturing units in India, and they will raise most of it from the domestic capital market.
Indian firms’ capital expenditure, or capex, recoiled during the economic slowdown. But according to a Deutsche Bank report, it appears to be once again on the upswing. “Private capex should be fortified by governmental push for infrastructure. Capacity utilization has started to creep up in FY10 (fiscal 2010) and may lead to higher capex if demand remains robust,” it said.
In 2009-10, state-owned firms raised Rs30,942 crore, or 66% of the total capital raised during the year. The previous highest was Rs16,563 crore in 2003-04.
Of the money raised in 2009-10, Rs21,162 crore was through divestments and Rs9,780 crore through fresh capital. Six firms entered the market during the year, led by NMDC Ltd (Rs9,791 crore) and followed by NTPC Ltd (Rs8,480 crore), NHPC Ltd (Rs6,039 crore), Rural Electrification Corp. Ltd (Rs3,530 crore), Oil India Ltd (Rs2,777 crore) and United Bank (Rs325 crore).
This year, the government has set a more ambitious target of Rs40,000 crore. “We believe it is feasible, but pricing needs to be made much more attractive for qualitatively-better absorption,” Deutsche Bank analysts Abhay Laijawala and Ahishek Saraf said in the report mentioned earlier.
S. Vishvanathan, MD and CEO of SBI Capital Markets Ltd, was a little circumspect, pegging the expectation of capital raised at about Rs1 trillion in 2010-11. “It is going to be an exciting year, with the government leading with issues of Rs40,000 crore. We expect an equal number from the private sector, making it a year where we will see firms raising in excess of Rs1 trillion,” he said.
There are concerns that interest could drop off as bankers—fighting for market share—ended up doing government business for as low as zero fees. The government is working on a revised bidding structure, stipulating a minimum fee, bankers said.
UBS Securities, which advised on the sale of shares of NMDC along with five other banks, received Rs10 lakh after the firm raised Rs9,791 crore.
Tripathi of BCG said the government should help investors explore all avenues of financial services. Mutual funds should chose a model to penetrate into semi-urban and rural areas, he added.