Even as analysts were busy writing the company’s obituary, five large foreign institutions picked up nearly 15 per cent in Unitech for $325 million through a Qualified Institutional Placement (QIP) in mid-April.
QIP is a process by which a company sells securities other than warrants to large institutions. These securities are issued to qualified institutional buyers on a discretionary basis.
The Unitech QIP has become a landmark of sorts as it clearly indicates that there is still global demand for Indian paper—be it debt or equity—despite risk aversion.
Taking a cue from Unitech and Tata Capital, which raised Rs 1,500 crore through a non-convertible debenture issue in February, corporate India has lined up plans to raise about $6 billion over the next two months.
Says Sunil Ladha, senior vice-president, capital markets, at ICICI Securities: “While this is a positive trend, a lot depends on its sustainability. If it continues for two quarters then it means there is buoyancy in the market and that eventually initial public offers (IPOs) too will come back.”
Ratan Tata, Tata Motors Anand Mahindra, Tech Mahindra Kumar Mangalam Birla, Aditya Birla Nuvo Sanjay Chandra, Unitech G. Mallikarjun Rao, GMR Kishore Biyani, Future Group Shishir Kumar Bajaj, Bajaj Hindusthan |
| |
The India fundamentals story, which got derailed last year due to a liquidity crisis, may get revived if the fund-raising plans of companies materialise. According to a Credit Suisse report, if Indian companies succeed in raising $10-15 billion over the next few months, corporate fundamentals could push the market substantially higher by 2010.
In the last one year, Indian companies have found it rather difficult to raise foreign capital due to the global financial crisis. In the last one month, though, the tide has turned slightly with positive economic data flowing from developed economies. Within weeks of five FIIs picking up a stake in Unitech, even the secondary market has rebounded with foreign inflows touching $2.3 billion in fiscal 2009. The first 10 days of May alone have seen inflows of $1 billion.
Despite the surge in the secondary market, few companies across sectors are looking to tap capital markets. Given that most valuations are still much lower than peak levels, promoters are preferring to raise debt rather than dilute their stakes at these levels.
Companies that are heavily leveraged, however, are left with no option but to dilute equity at these levels. Those who are choosing to do this are mostly from sectors that are finding it hard to raise debt.
Explains Anshul Krishnan, head of India Financing Group, leading the capital markets business at Goldman Sachs India: “Most companies in India are still family-owned and equity dilution remains a key consideration for promoters.
Equity dilution is, therefore, happening sooner in those sectors where liquidity is tighter or near-term needs are substantial, like real estate and infrastructure.” So raising equity capital in this environment would be seeking desperate capital.
The India story got a leg-up between 2005 and 2008 due to the huge capital expenditure plans that companies lined up for capacity expansion.
But this time around, Indian companies are seeking capital primarily to clean up their balance sheets.
Last year, when the markets tanked in February, several companies who had raised debt and were ready to tap the capital market, were caught by surprise.
Krishnan, however, has a warning for those looking to raise equity capital: “Given that markets remain volatile, windows of opportunity are coming and going quickly, so companies will have to be prepared with relevant permissions or the conditioning to act whenever opportunities arise. While India is no doubt benefiting on a relative basis now, there is still mixed evidence on the underlying global economic fundamentals and to, therefore, suggest that this is a secular recovery trend might be premature.”
While the financial services sector may not have shown much promise, mutual fund and insurance businesses of the Aditya Birla Group have beaten the industry’s growth rates. Says Sushil Kumar, chief financial officer of Aditya Birla Nuvo: “Even in the tough environment of last financial year our life insurance and asset management businesses delivered substantially higher growth compared to the industry and gained a handsome market share.”
So what does this mean for the economy and capital markets? While there’s no doubt that capital flows into viable projects are positive for the economy, this trend will also help in arresting the current moderation being witnessed in investment growth.
This, along with steady growth in consumption, places the Indian economy in an enviable position. Given that this is just the beginning of a turnaround in the credit crisis, not much should be read into this trend unless it continues for at least two to three quarters, maintain the pundits.
No comments:
Post a Comment