There has been a resurgence in India’s primary market for equities in the June quarter. According to Bloomberg League Tables data, Indian companies raised Rs13,329 crore from initial public offerings, follow-on offerings, rights issues and qualified institutional placements (QIPs) in April-June quarter. This is the highest amount raised in the domestic market in the past five quarters.
The overseas market for foreign currency convertible bonds (FCCBs) and depository receipts (DRs) continued to be weak. Bloomberg has listed Vedanta Resources Plc.’s $1.25 billion convertible bond issue under Indian FCCBs, since Vedanta is essentially a holding company for Indian assets. But for firms listed in India, the FCCB and DR markets have been dry for the past four quarters.
As a result, Indian companies have primarily relied on QIPs and private placements to raise funds. Funds worth Rs5,500 crore, or at least 40% of the total funds, raised through equity issuances in the June quarter were through the QIP route. The time to market for this instrument is considerably lower than most other forms of raising equity funds. And considering that Indian companies needed to capitalize quickly before market sentiment reversed, the QIP route has worked very well in recent times.
Till early last year, i.e. before the market bubble burst, FCCBs were in great demand. But as a result of the market crash last year, these bonds were trading at about half their face value, leading to huge losses for most bond holders.
While this set of investors would be fighting shy because of last year’s bad experience, even Indian companies have learnt the lesson that a convertible bond cannot be conveniently viewed as equity. For a large number of firms, these bonds are highly likely to end up as debt in about two-three years. The Securities and Exchange Board of India’s plan to introduce the QIP route as a counterpart for FCCBs is hence working well. Of course, some companies such as GMR Infrastructure Ltd have found out the hard way that although appetite for Indian paper has improved, pricing is still critical.
The overseas market for foreign currency convertible bonds (FCCBs) and depository receipts (DRs) continued to be weak. Ahmed Raza Khan / Mint
Another route some Indian companies and their promoters have used, perhaps more often than in previous quarters, is to sell minority stakes in subsidiary and investee companies. Promoters of DLF Ltd, United Spirits Ltd, Tata Consultancy Services Ltd and Suzlon Energy Ltd, each of which was stretched for funds, raised Rs5,930 crore by selling shares in their companies. Larsen and Toubro Ltd also raised Rs1,040 crore by selling its shares in Ultratech Cement Ltd. According to Bloomberg, in the first half of this year, 57% of the funds raised through sale of equity were through such block deals in the secondary market, while 38% of the funds raised were through QIPs.
The successful IPO of Mahindra Holidays and Resorts India Ltd (oversubscribed about 10 times) points to a possible revival of the IPO market as well.
This month, Unitech Ltd was able to raise at least $500 million through a QIP—its second in about three months. Some others have struggled to raise funds. Needless to say, while there’s ample money sitting on the sidelines, investors are still exercising some caution as far as valuations go.
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