In a major leg-up to fundraising activities, Indian companies are estimated to have mopped up a whopping Rs 8.5 lakh crore from capital markets in 2017 -- rising by about a quarter -- with debt instruments remaining the most preferred route for financing business needs.
In a major leg-up to fundraising activities, Indian companies are estimated to have mopped up a whopping Rs 8.5 lakh crore from capital markets in 2017 — rising by about a quarter — with debt instruments remaining the most preferred route for financing business needs. However, corporates may face increased pressure in 2018 in terms of availability and cost of debt capital in domestic markets and they may favour borrowing money from overseas markets or raising money from equities in the new year. Out of the cumulative Rs 8.5 lakh crore garnered this year from capital markets, a large chunk or over Rs 7 lakh crore has been mopped up from the debt market, data compiled by analytics major Prime Database showed. In 2016, firms had raised Rs 7.7 lakh crore and most of the funds were mobilised through debt markets that year too. Fresh capital collected from equity market stands at Rs 1.45 lakh crore for 2017, which mostly came from initial public offers (IPOs) and issuance of shares to institutional investors. The funds have been raised mainly for business expansion plans, loan repayments and beefing up of working capital reserves, while a large amount raised from IPOs also went to the promoters, private equity firms and other existing shareholders for part or full sale of their investments. “Demonetisation led to a fall in interest rates (cost of borrowing) and ensured adequate liquidity in Indian capital markets. The lower cost of borrowing and strong demand for corporate paper (from investors chasing yields) made it attractive for Indian companies to raise debt. “Moreover, with private capex remaining lacklustre, companies raised capital mostly for short-term working capital purposes and to replace existing high cost debt. Debt and not equity is the preferred route for such purposes,” said Alok Agarwala, Senior VP and Head of Investment Analytics at Bajaj Capital. According to Prime Database’s Managing Director Pranav Haldea, companies always prefer debt route for raking in funds rather than equity, which is a relatively expensive mode of capital raising. In the debt segment, firms have mopped up Rs 6.2 lakh crore through debt placement route, Rs 6,282 crore has been raised through public issuance of debt and Rs 60,580 crore through plain bonds. Within the equity segment, IPOs helped garner over Rs 68,000 crore, followed by QIP or Qualified Institutional Placement (Rs 49,703 crore), Offer for Sale through stock exchange mechanism (Rs 14,712 crore), rights issue of shares (Rs 5,800 crore) and institutional placement programmes (Rs 4,668 crore). When it came to overseas markets, routes like American Depository Receipts (ADRs), Global Depository Receipts (GDRs) and foreign currency convertible bond (FCCB) remained largely untapped.
Investors have also shown tremendous response to pubic issues of non-convertible debentures (NCDs) by non-banking finance companies (NBFCs) in 2017. Also, the recent spurt in mutual fund investments have created a large scope in corporate bond markets for companies. All these factors contributed tremendously to capital raising via debt route. Apart from debt, demand for equities has also increased, mainly post-demonetisation, while bullish stock markets have further helped. “Bullish stock markets are the best time for promoters to raise capital as they can raise the required amount by diluting a lesser portion of their capital, or get a higher amount for the same amount of stake dilution. Net supply in equities had been negative till the first half of 2017 whereas demand rose sharply. This created an ideal situation for companies to raise capital,” Agarwala added. Purvesh Shelatkar, Senior Vice President – Institutional Equities, Centrum Broking, said: “The falling domestic interest rates have led to flow of money in equities and the trend will continue for at least next few years.” The year 2017 has seen hectic fund-raising activities in the IPO segment amid a sharp rally in the secondary market. A total of 36 firms have collected a record amount of over Rs 68,000 crore through IPOs this year. However, 83 per cent of the total has gone to promoters and other existing shareholders like private equity players leaving only 17 per cent funds for the firms’ growth and expansion plans. In comparison, 27 issuers had mobilised a total of Rs 26,494 crore in the previous year. The IPO chart for 2017 is led by state-run General Insurance Corp of India (GIC) that garnered over Rs 11,372 crore. This was the largest public float by a firm since October 2010 when another state-run giant Coal India had garnered Rs 15,000 crore.
The year 2017 also witnessed the high-profile IPO by leading stock exchange BSE. The rise in mobilisation from IPOs was further aided by the launch of public issues from several insurance firms such as HDFC Standard Life Insurance, New India Assurance Company, SBI Life Insurance and ICICI Lombard General Insurance. Together, these companies have raised around Rs 35,000 crore after insurance regulator IRDAI relaxed capital raising norms for insurers, said V Jayasankar, head of equity capital markets at Kotak Investment Banking. Apart from the main bourse, the small and medium enterprise (SME) platform too witnessed frantic activity. Such firms raised a staggering over Rs 1,500 crore, much higher than Rs 537 crore raked in last year. Attractive pricing for IPOs, leaving some juice for investors, contributed well to the surge in fund-raising through this route, Jayasankar added. The outlook appears bullish for the new year too on IPO front as several companies have lined-up their plans and the total fund mop-up through this route may remain equally good or even better. “I see 2018 to be even better than 2017 for IPO markets. Investor appetite for equity is likely be higher as earnings growth resumes, interest rates remain low and liquidity remains adequate.
The demand supply equation in equities is likely to remain favourable in 2018 and this should encourage promoters to raise capital and list their businesses. “We see significant IPO supply coming from the financial services and fintech domain,” Agarwala added. Apart from IPOs, fund raising through other equity avenues also increased in 2017. Capital raked in through QIPs shot up to Rs 49,703 crore in this year from Rs 4,712 crore in 2016. Of the total, country’s largest lender SBI alone garnered Rs 15,000 crore by issuing shares to institutional investors. Also, money raised from rights issue stand at Rs 5,792 crore in 2017, while it was just Rs 1,914 crore last year. Besides, funds mop-up via OFS route climbed to Rs 14,712 crore in 2017 from Rs 13,066 crore from the preceding year.