Firms set to raise $5 billion by selling shares

Mumbai: Indian firms are expected to sell shares worth at least $5 billion (around Rs.29,600 crore) to institutional investors in the next two months, riding on improved sentiment and liquidity in the equity market and hopes that the new government will revive the economy through reforms.

Companies from the infrastructure and finance sectors are among those who are likely to tap the markets, many of whom have begun discussions with bankers and potential investors, investment bankers said.

“The actual fund raising could surpass the best of current estimates that are being discussed currently,” said Sanjay Bajaj, head of equity capital market at HSBC Securities and Capital Markets (India) Pvt. Ltd.

Bajaj said investors are looking at India as a macroeconomic story and infrastructure fits in well with the overall theme. “Therefore, there is likely to be investor appetite for efficient business models in the corporate world,” Bajaj said.

Two large companies have raised $1 billion through qualified institutional placements (QIPs) in the past week, with wealthy individuals and institutions participating aggressively in the issues, both of which saw bids far in excess of target.

Some firms preparing for QIPs include Adani Enterprises Ltd ($1 billion), the GMR Group ($500 million), Reliance Communications Ltd, ($1 billion), Jaiprakash Power Ventures Ltd (Rs.3,000 crore), HDFC Bank Ltd, (Rs.10,000 crore) and Omaxe Ltd (Rs.500 crore). That these companies are looking to tap the markets was confirmed by several investment bankers, who spoke on condition of anonymity.

Adani Enterprises, GMR and Jaiprakash Power Ventures declined to comment. Omaxe has informed the stock exchanges about its fund-raising plan. HDFC Bank has also informed the stock exchanges of a board approval to raise up to Rs.10,000 crore, without specifying the timing of the issue. Reliance Communication did not respond to emailed queries.

Last week, Idea Cellular Ltd, an Aditya Birla Group company, and private lender Yes Bank Ltd raised $500 million each through QIPs. KSK Energy Ventures Ltd raised Rs.400 crore on 4 June.

A number of companies have either taken board approval to raise equity capital or are in the process of doing so.

For instance, Interlink Petroleum Ltd on 6 June informed BSE that it has approved a Rs.2,000 crore equity issue. On 7 June, IDBI Bank Ltd’s board granted in-principle approval to raise equity capital to the extent of Rs.4,000 crore through a QIP or a follow-on public offer. The board of Future Retail Ltd will meet to approve fund-raising options, including a possible QIP, on 11 June.

Issuers have already raised $2.5 billion through QIPs since the beginning of the year, said Gaurav Mehta, head of corporate client solutions (India) at UBS Securities India Pvt. Ltd. State Bank of India raised a record sum of $1.3 billion via a QIP at the beginning of 2014.

“Over the last two weeks, we have already seen two large QIPs of $500 million each. Both Yes Bank and Idea Cellular had shareholder approvals in place and were able to tap the post election improvement in investor sentiment,” Mehta said.

The last time the Indian market had seen such a surge in QIPs was in 2009 after the general election held in that year, Mehta said. At that time, the fund raising was dominated by property developers. Indiabulls Real Estate Ltd raised $550 million via a QIP immediately after the election results were announced.

This time around, it’s the infrastructure firms that are looking to raise equity capital and reduce debt, which has mounted over the past few years due to a slowdown.

One-third of the corporate debt in India is on the books of companies with a debt-equity ratio of more than 3, the highest degree of leverage in the Asia-Pacific region, the International Monetary Fund said on 28 April.

In addition to infrastructure, financial sector firms, which are either gearing up for a pick-up in lending or trying to meet the increased capital requirements under international Basel III banking norms, are also tapping the market.

“This time, we expect companies in the financials space to be the most active. Given the funding requirements and improved outlook for the economy, we also expect to see significant equity raising in the broader infrastructure and capital goods sectors,” Mehta said. “A number of companies already have their fund-raising approvals in place, but with increasing confidence and investor appetite, issuers will be encouraged to seek shareholder approvals for equity raises.”

Indian firms are rushing to raise money from the markets following a decisive victory for the Bharatiya Janta Party in the general election, Mint reported on 20 May. This rush of QIPs could be a precursor to a revival in the moribund initial public offering market, the report said.

To be sure, some are circumspect about whether investors will be able to absorb the sudden rush of QIP issues.

Since companies are planning to raise Rs.30,000 crore within a time frame of two-three months, only the issues of companies with healthy balance sheets will sail through, said an investment banker who was part of the share sale by Idea Cellular.

“Infrastructure, power and real estate sector are dying for cash and they are trying to expedite their QIPs,” he said, requesting anonymity. “These companies will hit the market soon to raise capital, but there is too much of competition in the market for money.”