India Inc lines up $17-billion IPOs

THERE is always a lull before the storm. After a rather dull first eight months of 2008, the Indian capital markets are headed for a stormy session ahead. What’s in store for the last four months is more than thrice the amount of proceeds raised during the first eight months.

In fact, Indian companies are lined up to raise an estimated $17 bn from 56 public issues during the last four months of 2008, according to Thomson Reuters estimates.

Merchant bankers in India don’t rule out a possible IPO bubble burst, considering the huge amount of IPOs in the pipeline. Till now, companies have deferred their issues due to valuation concerns. They have been waiting in the hope that market sentiments will rationalise sooner rather than later. Now, they are slowly but surely resigning to the fate and starting to move ahead with the fund raising process, as there are genuine capital requirements, which cannot be put on hold beyond a certain timeline.

Analysts worry that the stampede, which is most likely to emerge in the last four months of 2008, would make it a difficult market for merchant bankers to complete deals. Probably, they’ll work on selective deals and after a hard look at what can sell in this market decide on the course of action. It will also be interesting to see whether the entire system is actually ready to manage the IPO rush, especially when too many competing deals will be flooding to be get done at the same time.

This follows the Securities & Exchange Board of India (Sebi) recently kicking off primary market reforms by amending the rules on collection of IPO money. As per the new guidelines, retail investors’ money will remain in their bank accounts till allotment. Also, it recently reduced the duration for a rights issue from 109 days to 43 days.

State-owned companies such as NHPC (Rs 1,670 crore), and Oil India Ltd (OIL Rs 1,400 crore) have already made their intentions clear by filing applications with the Sebi and are expected to set the tone for private companies to follow suit. Another state-run company, RITES (Rs 350 crore) has already got a SEBI approval for its public issue

This is the best time for the government to take the lead to revive the primary market. Divestments and offerings from PSUs at attractive prices can pull back investors easily. Once the momentum starts, the sentiments would improve. We have seen this happen in the past; it can happen again.

Capital markets to improve

WITH credentials not under question and with the right pricing, PSU IPOs can become the harbinger of good markets. The capital markets will only improve from here on. We expect the situation to improve significantly over the next twelve months. We, in fact, are already getting there. Earlier this year companies such as Wockhardt Hospitals and Emaar MGF had withdrawn their public offerings due to a lukewarm response. Surprisingly, despite the slowdown, India still managed to occupy the fifth slot in the $87-bn global IPO market, raising $4.3 bn from 32 deals so far this year. On the other hand, China ranks second, raising $15.6 billion from 94 IPOs.