Helped by robust capital markets, IPO financing is likely to witness healthy traction in the current fiscal year, with loans for large-size public issues pegged at an average of Rs 65,000-70,000 crore, says a ICRA report. “The initial public offer (IPO) financing market in India is expected to continue to witness healthy traction in the current fiscal, supported by favourable capital markets coupled with a line-up of prominent IPOs in a diverse range of industries including financial services and insurance,” the rating agency said.
As per ICRA’s estimates the IPO financing market is pegged at an average Rs 17,500 crore to Rs 22,500 crore per issuance which can go up to Rs 65,000 to Rs 70,000 crore for issuances which are large size as well as with higher investor interest. “The IPO financing market was very vibrant in 2016-17, supported by an increase in HNI (high net-worth individual) investors’ interest in IPOs in a quest for listing gains,” ICRA senior vice president Karthik Srinivasan said.
“With banks not active in this segment due to regulatory restrictions, the field is dominated by non banking financial company (NBFC) arms of some of the leading players in the capital markets and wealth management businesses,” he added. IPO financing is a short-term credit provided by the NBFC arm of broking firms, typically to HNIs.
The report noted that there has been a surge in HNI interest in IPOs to capitalise on the listing gains. The median subscription level for the non-institutional investor including HNIs stood at 80 times for the IPOs in the last fiscal as against 2 times for 2015-16.
“This, in-turn, has created a market for providing short-term capital to the HNI investors for funding the IPO application,” the report said. “In such instances, the HNIs deploy a small fraction of their own capital upfront, that is the margin money, and the rest is raised through short term loans covering the period between the IPO closure and the final listing, thereby allowing the HNI investors to apply for a larger quantum while applying for the IPO,” it added.