Back‘Equity capital available for solid business models’
Investors look at several factors such as a firm’s growth story, its competitive advantage and price of equity
PremiumIndian companies with solid business models and investment plans would have access to equity capital despite the current volatility in the stock markets, said Ravi Kapoor, head, banking, capital markets and advisory, Citi India.
With covid-19 severely impacting economies worldwide, most companies have found their balance sheets stretched as cash flows dried up. Significant erosion in stock prices, as well as a risk-averse banking sector have made it difficult for companies to raise capital.
Kapoor said, however, that investors, flush with liquidity, are willing to bet on companies if they meet the right parameters.
“Investors are supportive of providing equity to companies if they are convinced about the growth story, competitive advantage, need, the size of the capital raise and the price at which equity is offered. Markets will reward companies, which plan to raise growth capital, if they correct their capital structure, reduce leverage, prevent ratings downgrade and arrange liquidity sooner than later," Kapoor said in an interview.
So far this year, Citi has advised several transactions, including the $3-billion equity and convertible bond offering of Bharti Airtel Ltd, dollar bond offerings of Shriram Transport Finance Co. Ltd, Exim Bank and Adani Electricity Mumbai Ltd.
The recent volatility in the equity markets has made it tough for listed companies to tap it for raising funds. But, once the market stabilizes, there is bound to be a strong appetite for fresh capital, though the fund-raising models are likely to see some change.
“Once markets stabilize, there will be a surge in capital raising. Global liquidity will start coming into the market, once foreign investors are in risk-on mode. Capital-raising formats may change though and companies may use rights issues and follow on public offers vs QIPs (qualified institutional placements), which was the most preferred option before the market correction started," said Kapoor.
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