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Firms rush to raise money from markets on Narendra Modi’s victory

LiveMint logoLiveMint 19-05-2014 Malvika Joshi

Mumbai: Indian firms and banks are queuing up to raise funds from the equity markets in an attempt to cash in on the euphoria over the victory of the Bharatiya Janata Party (BJP), perceived as business-friendly, in the general elections.

Many companies are readying themselves for qualified institutional placements (QIPs) —equity sales to banks, financial institutions, and just about anyone seen as a financially sophisticated investor by the stock market regulator. And this rush of QIPs could be a precursor to a revival in the moribund initial public offering (IPO) market, say investment bankers.

The money could help companies retire debt and prepare for the faster economic growth that many economists anticipate. It could also help banks provide for the pile of bad debt on their books, meet capital adequacy norms, and prepare for a credit boom that usually accompanies faster economic growth.

On Monday, Jaiprakash Power Ventures Ltd announced plans to raise up to `3,000 crore for funding its ongoing projects and cutting debt. The firm has indicated that it will explore various options, including a QIP and external commercial borrowings to raise money, with the issue likely to be completed over the next two months.

Also on Monday, HDFC Bank Ltd, India’s second largest private-sector bank, received the approval of its board to raise upto `10,000 crore by way of issuing fresh equity shares to domestic and foreign investors any time over the next one year, the bank said in a statement to the stock exchanges.

Kolkata-based United Bank of India plans to raise `1,000 crore through a public issue, QIP or a rights issue and an additional `300 crore through a preferential allotment to the government and Life Insurance Corp. of India (LIC), the bank said in a notification to the stock exchanges.

The three join a long list of other corporate entities and banks that have been waiting for a conducive market climate to raise money.

Indian Overseas Bank (IOB) is preparing a fund-raising plan which will be submitted to the finance ministry for approval. “We will be submitting our funding requirements in the next 15 days. We will be looking at raising funds through a QIP and rights issue,” said M. Narendra, chairman and managing director of the state-owned bank.

On 16 May, Amtek Auto Ltd said that it plans to sell shares through a QIP and other instruments. It did not specify the details. BF Utilities Ltd, a part of $2.4-billion Kalyani Group, said on 17 May that it had decided to raise up to `500 crore through several avenues, including a QIP.

The GMR Infrastructure Ltd, which looks after the financial requirements of various infrastructure projects of the GMR Group, is also joining the bandwagon. “The market is looking good and GMR Infrastructure will be looking to raise money through QIP,” a GMR executive said on condition of anonymity.

A GMR spokesperson said the company does not comment on market speculation. “We don’t comment on speculation…we will announce only if/when the decision is taken.”

The GMR Group runs the Delhi and Hyderabad airports, and recently scrapped a plan to list its energy unit. That was before the electoral result that gave the BJP a majority in the Lok Sabha.

The GMR Group has sought to fund itself through asset sales even as the debt on its books has soared to `45,845 crore (as on 31 December 2013).

Jaiprakash Power Ventures Ltd sold two hydropower plants to a consortium led by Abu Dhabi National Energy Co. PJSC for `10,320 crore in an attempt to pare the debt on its books.

As of 31 March 2014, Jaypee Group’s consolidated debt stood at `Rs60,000 crore.

The rush to raise capital comes against the backdrop of rising debt levels at Indian corporate entities. In a report dated 28 April, the International Monetary Fund (IMF) highlighted that a third of the corporate debt in India is on the books of companies with a debt-to-equity ratio of more than three, the highest degree of leverage in the Asia-Pacific region. Much of the debt on the books of companies, and the bad debts on the books of banks, correspond to industrial and infrastructure projects delayed by issues in acquiring land, securing environmental clearances, or lining up fuel supplies.

“We are going to see a flurry of QIPs in the next 5-6 months, especially by banks, infrastructure and real-estate firms which are cash-starved. While bullish sentiment is expected to continue, these firms would want to immediately capitalize on the market rally and not miss the bus,” said Vinod Wadhwani, director at Ambit Corporate Finance Pte.

Thus far in 2014, `8,112 crore has been raised via two QIP issues, which includes an `8,000 crore issue by State Bank of India (SBI) earlier this year. In 2013, `8,075 crore was raised via 10 issues, and the year before that, `4,704 was raised via 12 QIP issues.

While the environment for fund raising, which includes QIPs and IPOs, is turning positive, bankers say QIPs will be first off the blocks owing to fewer regulatory formalities than for IPOs.

“The market for QIPs can revive earlier. The firms can raise money from the market quickly as the process takes less than a couple of months,” said V. Jayasankar, senior executive director and head of equity capital markets, Kotak Investment Banking.

Globally, the banking and financial services sector is most active when it comes to fund-raising and that has historically been true in India as well, Jayasankar added.

Apart from IOB, several other banks such as Dena Bank, Allahabad Bank and IDBI Bank Ltd have been looking to raise money through the QIP route.

The BJP’s widely anticipated electoral victory seems to have enthused foreign institutional investors (FIIs), in the run-up to the elections—and after it. Thus far this year, BSE Sensex and NSE Nifty have gained over 15%, with FIIs buying $6.7 billion in Indian stocks. Most brokerages expect a further spike in secondary markets.

A bullish and stable secondary market could also mean a revival in the primary markets. In 2013-14, companies raised `1,204 crore via 38 IPOs, compared with `6,497 crore via 33 issues the previous year, according to data by Prime Database, a Delhi-based market research firm.

According to Preet Mohan Singh, executive director (head, industrials group) at Avendus Capital Pvt Ltd, IPO issues will follow QIP issues. Bankers said at least half-a-dozen companies, including government and private firms, have plans for IPOs.

Lavasa Corp. is likely to revive its plan for a primary issue. A company executive confirmed the plans but declined to provide more details. The Mhaiskar family-controlled MEP Infrastructure Developers Pvt Ltd is also planning an IPO. A company spokesperson declined to comment.

Meanwhile, unlisted firms and the private equity (PE) investors stuck with their investments, owing to a muted IPO market, are becoming confident about securing profitable exits. And bullish about the growth prospects of their portfolio firms.

“A stable government will provide more confidence to potential buyers who have been hesitant about making any investments. There are expectations around faster growth rate and the opening up of capital markets,” said Keshav Mishra, partner at Baring India, a private equity firm.

http://youtu.be/KklhLZrLm7AIn an attempt to ride the Narendra Modi wave in equity markets, Indian firms and banks are queuing up to raise money through QIP route. Mint’s Malvika Joshi and P.R. Sanjai discuss this trend in detail.

Although exits will depend on expectations and valuations, an improvement in the regulatory and growth environment should create opportunities for exits through buoyant capital markets and strategic sales, Mishra added.

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