BackIPOs back in favour after 3-year lull
About 14 private firms plan to raise around Rs10,000 crore through initial share sales over the next 12 months
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Mumbai: From fashion labels and travel operators to real estate and infrastructure developers, companies that have avoided tapping investors for three years are starting to revive share-sale plans, seeking to benefit from buoyant equity markets and take advantage of an expected economic upturn.
Some 14 privately held companies plan to raise about ₹ 10,000 crore through initial public offerings (IPOs) over the next 12 months, according to estimates by bankers and brokers. A slew of follow-on public offerings (FPOs) is also expected as publicly traded companies, including state-run firms, join the fund-raising fray.
The share sales, aimed at raising funds for expansion and to reduce debt, follow qualified institutional placements (QIPs), or sale of equity to professional investors like fund houses and insurance firms, by six companies, including GMR Group, that raised a combined ₹ 12,151 crore in April-June, a 10-fold jump from ₹ 1,222 crore raised in the year-ago period, according to Prime Database.
In 2010, 64 companies tapped the IPO market, raising ₹ 37,534 crore. The pipeline has steadily diminished. In 2012, 11 companies raised a combined ₹ 6,835 crore, and in 2013, three raised ₹ 1,283 crore.
Things have changed this year. Optimism about an economic revival under a new National Democratic Alliance (NDA) government, in the run-up to and after the April-May general election, after two years of below-5% economic growth, has attracted foreign investors and pushed equity markets to record highs.
Since the start of this year, foreign investors have bought a net of more than $11 billion in Indian stock, pushing the benchmark BSE Sensex up by more than 21%.
Mumbai-based Pride Hotels Ltd is reviving plans to raise ₹ 200 crore through an IPO. Chief executive officer Satyen Jain, who had shelved plans to raise money a few years ago citing poor market conditions, says the market is robust now.
According to its earlier prospectus, Kotak Real Estate Fund-I owns a 10.92% stake in the company. Jain said the company is talks with some PE firms to raise a pre-IPO round of funding. He did not disclose their names.
“They have revived their plans but it (IPO) is some time away," said a banker working on the IPO for Pride Hotels, which has properties in Ahmedabad, Nagpur, Chennai, Kolkata, Pune, Bangalore, Goa and Jaipur and runs Pride Tiger Woods Resort near Kanha national park in Madhya Pradesh.
Having already raised $250 million via a QIP, infrastructure conglomerate GMR Group is reviving IPO plans for its subsidiary GMR Energy Ltd. Less than three months back, on 28 April, parent GMR Infrastructure Ltd told stock exchanges that it was withdrawing plans to take its energy unit public, citing “business reasons". Investment bankers say GMR Energy is now giving final touches to its IPO plans.
India’s largest airline IndiGo, run by InterGlobe Enterprises Ltd, is looking to raise around $400 million through an IPO. Investment bankers had flown to Paris earlier this month to seek a mandate from IndiGo, which is the most profitable airline in the country.
In addition, since February 2014, four companies have officially filed draft offer documents with the capital markets regulator. These are agrochemical maker Sharda Cropchem Ltd, theme-park operator Adlabs Entertainment Ltd, real estate company Lavasa Corp. Ltd and clothier Monte Carlo Fashions Ltd.
Cold chain service provider Snowman Logistics Ltd, media content house Shemaroo Entertainment Ltd, wind-turbine maker Inox Wind Ltd, Great Eastern Energy Corp. Ltd, an extractor of coal-bed methane, and telecom infrastructure firm Viom Networks Ltd are some of the other companies that have applied for permission or planning to approach the Securities and Exchange Board of India for public issues.
Lavasa, a unit of Hindustan Construction Co. Ltd (HCC), has revived plans to raise ₹ 750 crore. Axis Capital Ltd, Kotak Mahindra Bank Ltd and ICICI Securities are the bankers to the sale. In 2010, Lavasa had planned to raise ₹ 2,000 crore by selling 10% of the promoters’ stake but it did not take off.
Bankers caution that this time, too, not all primary issues will sail through.
“Companies have now realized that they cannot easily raise capital from markets like their peers could do earlier. Those players who are planning to utilize half the proceeds from the capital raised through listing for retiring debt will find it difficult this time," said a banker who is involved in two of the IPOs mentioned above.
The government is also in the process of selling shares of public sector undertakings (PSUs) such as Coal India Ltd, Oil and Natural Gas Corp. Ltd and Steel Authority of India Ltd.
“If the government decides to offer for sale shares of some of the large PSUs we will clearly see more than ₹ 0,000 crore being raised through FPO route. Even for IPOs it is fair to say around ₹ 8,000 crore or more is looking to be raised from the capital markets," said Dara J. Kalyaniwala, vice-president-investment banking at PL Capital Markets Pvt. Ltd.
Prithvi Haldea, chairman and managing director of Prime Database, said the money to be raised through IPOs can swell to as much as ₹ 5 trillion. “Though pipeline is strong, IPOs are dependent on various other factors including market sentiments, volatility, right pricing and right timing," Haldea said.
Other companies working on fund-raising plans include real estate developers Lodha Developers Pvt. Ltd and Century Real Estate Holdings Pvt. Ltd.
On 14 July, Bloomberg reported that Lodha was planning to raise as much as $1 billion through an initial share sale.
“They are planning to launch the IPO in next 6-9 months. The plans are kept very guarded and they have met with investment bankers to take their opinion on the size of the share sale…" said a person familiar with the IPO plans of Lodha Group who spoke on condition of anonymity.
A Lodha Developers spokesperson denied immediate fund-raising plans in an emailed response to queries from Mint.
“We have no plans of raising capital through a public listing at this time. We are well capitalized to meet our business growth plans through our internal cash flows." the spokesperson said.
Bangalore-based Century Real Estate plans to raise ₹ 1,000 crore through a newly created entity called Century Real Estate Investment, said managing director Ravindra Pai. Half the capital is being raised to pay off borrowings. It is in the process of hiring investment bankers
“Largely we are seeing that companies are looking to raise capital to pay off their debt," said Kalyaniwala.
Apart from traditional sectors, companies from sectors like e-commerce may also tap the primary markets. Ahmedabad-based online retailer Infibeam.com, promoted by Sachin Oswal and Vishal Mehta, has hired Jefferies Llc, Axis Capital, Kotak Mahindra Bank and others to manage its share sale.
“We plan to raise between ₹ 500-1,000 crore through our equity issuance. We plan to launch the fund raise programme in next 6-8 months." said a person familiar with the programme.
“We plan to bring an investor on board before we raise capital from the markets," said Mehta, co-founder of Infibeam.
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