IPOs to woo you like never before

The primary market seems to be looking up. Real estate major Parsvnath Developers and Lanco Infratech came out with public issues on Monday with the companies collectively planning to raise Rs 2,400 crore. Parsvnath witnessed an impressive opening response for its Rs 1,000 crore initial public offer with the issue getting fully subscribed on the very first day. However, the response was relatively subdued for the Lanco Infratech issue. It received bids for about 30 per cent of total 4.44 crore shares on the offer. Bankers though say that the Lanco IPO could also pick up in the coming days, as it might also benefit from the upbeat sentiments over the infrastructure sector. Both the issues are scheduled to close on November 10.

According to Prithvi Haldea of PRIME DATABASE, the country’s premier database on the primary capital market, "the (IPO) lineup now really looks good for the next three or four months." As against RS 7,581 crore, the companies expect to raise Rs 3,057 crore only through 12 public issues. The first half of the current fiscal 2006-07 turned out to be poor for the primary market.

There are 12 issues in the pipeline with Sebi approval and around 75 companies have filed offer documents, awaiting Sebi approval. Power Finance Corporation (PFC) is planning to come out with a Rs 1500 crore issue, whereas another company by the name of Sobha is planning to raise Rs 600 crore through the public issue. MSPL is another company that would come out with a public issue to raise Rs 500 crore shortly.

According to PRIME, significantly, over 400 public offers are in active pipeline, which collectively intend to raise a phenomenal Rs. 1,50,000 crore. If even some of these make it to the market in the near future, it would not only help channelize household savings into the economy, but also give the long-awaited breadth to our secondary market.

Of the above, 88 issues are sure to hit the market in the near future. These includes 13 issues (Rs.2,730 crore) which are already holding Sebi approval and 75 issues (Rs.19,000 crore) which have filed offer documents with Sebi and are awaiting approval. The list includes several mega issues including Cairn Energy (Rs.9,000 crore), Fortis Healthcare (1000), PFC (1000), Parsvanath (1000), Sobha Developers (650), MSPL (500), Orbit (450), Gammon Infrastructure (375), Akruti Nirman (350), Ind Synergy (350) and House of Pearls Fashions (300).

Mr Haldea feels, this is as good a time as ever for the Government to enlarge the investors’ base and the capital market, and to raise money that it so desperately needs. For this, the Government should use the IPO route which is the most transparent, non-controversial route. PSUs should also be encouraged to raise fresh capital from the market for their expansion programmes.

Compare this to the first half of the year, when despite a great opening in April, the market turned bearish after the secondary market crash in mid-May. According to Haldea, the amount raised through public issues did not come anywhere close to market expectations at the beginning of the year, despite huge success of public issues of the past year.

The biggest disappointment for the primary market has been the lack of divestments by the Government. Not a single divestment took place in the current fiscal; in fact, the last divestment was in October 2004 of NTPC. The pipeline of divestment/PSU offerings continues to become larger by the day yet nothing of it seems to be materialising.

In terms of amount raised, the first half ended with a mobilisation of only Rs 7,581 crore as per PRIME, almost similar to the corresponding period of the preceding year which had seen issues worth Rs 7,622 crore.

According to PRIME, the current period comprised 32 companies that made IPOs aggregating Rs 6,909 crore (previous year Rs.4,641 crore) and 4 companies which made FPOs of Rs 672 crore (Rs 2,980 crore). On the other hand, Rs 6,945 crore (Rs.6,369 crore) was raised through fresh capital and Rs 635 crore (Rs 1,253 crore) through offers for sale.

According to Haldea, significantly, 35 of the 36 issues was made by existing companies with a track record; just a single greenfield project hit the market (Reliance Petroleum). The largest issue of the period was of Reliance Petroleum Rs. 2,700 crore), followed by GMR Infrastructure ( 788), Sun TV( 603), and Tech Mahindra ( 465).

Unlike last year, which had seen Rs 2,835 crore mobilised, the banking sector this fiscal did not mobilise any amount. Like last year, there was no bonds' issue during the first half. Smaller issues continued to hit the market during the period. The previous full fiscal had 102 issues raising Rs 23,676 crore giving an average size Rs 232 crore while the average size in the first half of the current fiscal was Rs 210 crore.

Most market analysts feel that this is as good a time as ever for the Government to enlarge the investors’ base and the capital market, and to raise money that it so desperately needs. For this, the Government should use the IPO route which is the most transparent, non-controversial route. PSUs should also be encouraged to raise fresh capital from the market for their expansion programmes. For the companies also this is the best time to raise money as the market conditions are good and issues are getting subscribed and sometimes over subscribed.