QIP issues fall in the first half of 2015

Mumbai: A subdued domestic equity market and nervousness across global markets are hurting Indian companies’ plans to raise equity to reduce debt.

According to data from Prime Database, 19 Indian companies managed to raise just ₹ 7,989 crore—this year (as of 25 June)—by selling shares to institutions in so-called qualified institutional placements (QIPs).

This is in stark contrast to last year’s fund-raising rush, when a number of debt-laden firms managed to capitalize on the improved sentiment around India to raise equity.

On 26 June, Mint reported that IndusInd Bank Ltd had concluded a ₹ 4,300 crore issue, which takes the total funds raised from QIPs to ₹ 12,289 crore.

During the first six months of 2014, just nine companies managed to raise ₹ 21,079 crore, of which five issuances were opened in June last year, after the Narendra Modi-led NDA government took the reins at the centre.

“During the first three months, companies managed to raise capital but after that, market volatility has made it difficult for people to raise capital,” said Vikas Khemani, president and chief executive at Edelweiss Securities Ltd.

While the quantum of money raised has been lower, some issues, particularly those from financial services firms have attracted strong interest, say bankers. They, however, add that infrastructure firms, who need the capital more urgently, have failed to draw interest.

One reason for this is the poor performance of infrastructure firms on the stock markets. This has meant that investors who have put money into recent infrastructure QIPs are sitting on losses.

For example, Supreme Infrastructure India Ltd, which raised ₹ 100 crore in January this year, has seen its share prices drop by 40.72% since the issuance. Hindustan Construction Co. Ltd, which raised ₹ 400 crore through its share sale programme in April, has seen a 15.83% fall in its share price since.

“Banks are repeat fund-raisers and investors are keen to invest in them but infrastructure as a sector has not performed well. Also, on the ground, it will take time for things to move and thus investors are taking their time to invest in these sectors,” said V. Jayasankar, senior executive director and head of equity capital markets at Kotak Mahindra Capital Co. Ltd.

Jayasankar, however, is hopeful that things will improve in the next six months and companies will be able to raise equity capital.

“Investors will gradually come around and the fund-raising in terms of value will not be lesser than last year but the number of companies raising capital could be lesser than last year,” Jayasankar said.

In 2014, 33 companies collectively raised ₹ 31,684 crore through QIP issuances, making it the best year for fund-raising in the last five years.

Apart from a fall in the amount raised, the ticket size of individual QIP issues has also fallen. In the last six months, only three firms have managed to raise over ₹ 1,000 crore in one tranche—Bajaj Finance’s ₹ 1,400 crore issue, HDFC Bank Ltd’s ₹ 2,000 crore issue and IndusInd Bank’s ₹ 4,300 crore issue.

Most of the other issues have been smaller and in the range of ₹ 150-300 crore, with equity being raised either to reduce debt or to fund specific projects.

“QIP is a buoyant market tool and in the last few months, the markets have not been stable and they have hurt sentiments. The demand from investors is still weak and banks need to capitalize. Given this situation, they could opt for follow-on public offering over QIPs,” said Prithvi Haldea, founder and chairman at Prime Database.

The benchmark BSE Sensex is up 1% so far this year compared with a near 30% gain in the index in 2014.

To be sure, a number of firms have approvals in place to raise equity and could tap the markets if the sentiment improves.

This includes a number of state-run banks such as State Bank of India, Canara Bank and Punjab National Bank.

A number of pharmaceutical firms like Lupin Ltd, Cadila Healthcare Ltd, Torrent Pharmaceuticals Ltd and Aurobindo Pharma Ltd have also taken board approval for fund-raising. Together these companies plan to raise around 22,600 crore.

“There was definitely a slowdown in the first half of this year in terms of fund-raising through QIPs but we believe that the markets will open up during the rest of the year. Foreign institutional investors have increased investments and many companies are waiting to raise capital,” said S. Subramanian, managing director and head of investment banking at Axis Capital Ltd.