Listing gains for high net worth individuals (HNIs) who invested in Coal India IPO may be tempered by the high borrowing costs. According to market participants, about 60% of Rs 50,000 crore worth of applications that have come from the HNI segment has been borrowed at an interest rate of 13-15% per annum.
?Few HNI investors would have put in their own money. Since there is scope to make money in this issue, they have borrowed heavily,? said Prashanth Prabhakaran, president of retail broking at India Infoline. While the issue price has been fixed at Rs 245, the overall break-even cost for HNIs is expected to be Rs 270-290 because of interest costs, according to experts.
The HNI segment for Coal India offering saw the maximum oversubscription of almost 25 times. Almost all broking houses including IIFL, Edelweiss and JM Financials have lent for this issue, which are typically financed for 10 days. Since the HNI portion was subscribed 25 times, for every Rs 100 invested , HNIs will get allotment worth only Rs 4. While most have borrowed, others have sold existing shareholdings in the cash market or have gone for ?market neutral? leveraging by taking position in the futures market and rolling it over. For these latter set of investors, the break-even costs have been slightly higher at around Rs 290-300, due to high rollover cost for October to November series. The rollover cost for stock futures has shot up to 1%.
Prabhakaran believes the stock could list anywhere between Rs 280-325. ?There will be a lot of FIIs and mutual funds who?ll want to have this stock in their portfolio. They will buy this stock from the secondary market as they will get only a minuscule allotment through the IPO,? he said. According to Kedar Deshpande, head retail broking, Edelweiss Securities, ?HNIs will only sell if their getting a price beyond their costs, which is not difficult for a stock like Coal India.? Shares of the company are expected to get listed on November 4.
Meanwhile banks and NBFCs have cashed on the IPO financing opportunity, which is pegged to be around Rs 200 crore in interest income only for this coal india issue. ?The opportunity was huge for NBFCs as well as investors despite tight liquidity situation,? said Sandeep Adukia, president?Capital Markets Finance, Religare Finance. ?There was no great risk investing in this IPO.? Due to the high interest rates in the short-term money market, investors borrowed at 12-14% per annum. Short-term borrowings rates are currently at almost 19-month high to over 8% levels and NBFCs, typically, keep a 4-6% spread for themselves. Coal India shares are expected to list on November 4.