Fund-raising via IPOs at 11-year low

Ankit Doshi Posted online: Thursday, Mar 27, 2014 at 0000 hrs
Mumbai : Secondary equity markets may be on cloud nine, having risen more than 10% in the last one month, but the magic is yet to rub off on India's primary markets.

The pessimism is evident as the R700-crore initial public offering (IPO) of Bharat Business Channel (BBC), the direct-to-home satellite television arm of Videocon Group, failed to take off, owing to unfavourable market conditions, showed statistics compiled by Prime Database.

“Even as the stock market has rallied, the sentiment remains weak and uncertain. There is no appetite for the (Bharat Business Channel) issue, especially on the retail front,” said one person familiar with the matter, requesting anonymity. Bharat Business Channel is not alone. Mumbai-based manufacturer of pharmaceutical raw materials, Calyx Chemicals & Pharmaceuticals, also failed to launch its R180-crore issue before its January 17 deadline this year.

Iron and steel maker Loha Ispaat failed to receive full subscription even after the Mumbai-based company reduced its price band and extended issue deadline by almost a week. The issue was subscribed nearly 0.8 times, with retail investors’ book subscribed just 0.3 times, stock exchange data showed.

Securities and Exchange Board of India's (Sebi) approval to launch a public issue is valid for one year. BBC had received Sebi approval on March 15 last year, and was the second biggest issue in the pipeline following the success of Just Dial in May last year. Regional cable television service provider Ortel Communications' issue is the biggest IPO in the pipeline with an estimated size of R1,000 crore.

Ortel is permitted to tap the primary market before June 26, 2014. Companies that failed to launch their issues in the last 6-8 months include the state-owned Rashtriya Ispat Nigam (R2,500 crore), minerals and mining company ACB India (R1,000 crore), financial consultancy firm IFCI Factors (R750 crore), Vishwanath Sugar & Steel (R374 crore), and PME Power Solutions India (R350 crore).

Despite the strong performance of equity markets in the last one month, experts feel that Indian markets lack depth and appetite among investors. Moreover, confidence, especially that of retail investors, has dropped to multi-year lows as structural economic issues and lack of progress on policy reforms stemmed India's economic growth to the lowest in a decade.

“There is no depth in the market... We are also talking about some companies with very large issue size. Given the uncertain outlook, investors continue to stay risk averse,” said Prithvi Haldea, CMD, Prime Database.

A separate data from Prime also shows that primary capital markets have lost about R60,000 crore in the last four years with more than 100 companies cancelling their IPOs citing weak market conditions.

In addition, fund-raising by way of IPOs in FY14 stands at its lowest level in 11 years. For the current fiscal, about 33 companies launched their IPOs and cumulatively raised R1,185.34 crore, down 448% from the amount raised in the previous financial year.

Ajay Saraf, ED, head of corporate finance and institutional equities, ICICI Securities, in an earlier interview with FE had said that elections are crucial and a stable government is needed for India's capital markets to witness more IPOs.

“Large IPOs will depend on the general elections in May. If a stable government comes to power, I believe there will be a flurry of activity in the IPO market. So, elections will play a big role, especially for large-sized IPOs. Until then, you will see few mid-sized deals happening in the IPO space,” Saraf said in the interview.