Quantum of funds raised by Indian companies from the markets hit a staggering Rs 4 lakh crore in 2013, with debt market emerging as the most preferred route to garner capital for their business needs.
While there was a lull in the primary stock market — where the companies raise funds through the sale of shares via instruments like IPOs and FPOs, it was private placement of corporate bonds and non-convertible debentures that was used the most to meet funding requirements of businesses in 2013.
Together, the companies have raised fresh capital worth nearly Rs 4 lakh crore from equity and debt markets this year, shows an analysis of funds raised through various routes.
These funds have been raised primarily for business expansion plans and to meet capital requirements.
A large chunk of this amount or more than Rs 3.10 lakh crore has been mopped up from debt market.
Funds raised from equity market stands at about Rs 87,000 crore, which mostly include those raised by preferential share allotments to promoters and other investors, as also promoter share sale through Offer For Sale route.
Within the debt market, the companies raised Rs 2.65 lakh crore through debt placement route, while Rs 23,745 crore has been mopped up through non-convertible debentures and another Rs 19,650 crore via public issuance of debt securities.
According to market analysts, improving stocks valuations may lead to greater share sales by the companies in 2014, while debt market is also expected to witness robust activities in the new year.
“Indian debts are costly, still companies rushed towards this route for the fund raising activity in 2013 as equity was not available and there was lack of confidence among investors,” CNI Research’s Kishor Ostwal said.
Echoing similar views, Destimoney Securities’ MD and CEO Sudeep Bandopadhyay said companies have opted for debt route as they were not confident of raising funds through equity this year.
Another reason for flocking towards the debt segment to take advantage of the interest rate differential between bank loans and such bonds.
There was a lull in the equity market in 2013 as there was only one big ticket initial public offer (IPO) and one Follow-on Public Offers (FPOs) witnessed during the year.
Just Dail, a search engine service provider, was the only mega IPO that raised around 927 crore in May this year.
The entire year saw just one follow-on offer, by state-run Power Grid Corporation, which also happens to be the biggest public offer of the year with a size of Rs 5,400 crore.
Although, Power Grid’s FPO has infused a lifeline in the otherwise dull primary market, many companies like BSE, Shemaroo Entertainment and Great Eastern Energy among others are planning to launch public offers in the coming months.
Given the current market conditions, there could be a revival in the primary market in the new year, market experts said.
Experts believe equity markets are likely to perform well in 2014 also on strong FII inflows and the recently held state assembly election results brightening the chances of a BJP-led government at the Centre, on which overseas investors are said to be putting their bet.
“Stock market valuations are catching up, so we can expect many companies to divest stakes. I do not see that there would be a rush of IPOs but there is always demand for quality issues at the right price,” Ostwal said.
Bandopadhyay said a lot of activities are expected in the primary market next year as stock market are expected to perform well in 2014 on the expectations that stable government will be formed in the upcoming Lok Sabha elections.
According to Prime-Database, IPO proposals worth Rs 72,000 crore have been cleared by market regulator Sebi and they are waiting to hit the market.
Apart from volatility in the stock market, another major reason for companies shying away from IPO and FPO route for share-sale purpose during 2013 was Offer-for-Sale (OFS) and Institutional Placement Programme (IPP) route taken by listed firms to comply with regulatory requirement of minimum 25 per cent public shareholding sucked liquidity from the system.
During 2013, around Rs 30,270 crore were raked in through share-sale programme and major chunk of funds, which was Rs 23,245 crore, garnered through OFS and IPP mechanism.
Besides, as many as 34 companies tapped the IPO route to garner Rs 1,628 crore. Barring IPOs of Just Dial and V-Mart Retail, most of the companies hit the small and medium enterprises (SME) platforms of BSE and NSE.
However, a few companies including Scotts Garments, Repco Home Finance and Sai Silks (Kalamandir) shelved their IPO plans due to weak market.
During 2013, 70 Indian companies raised Rs 23,245 crore through OFS route, the largest being NTPC (Rs 11,469 crore), followed by Oil India (Rs 3,145 crore), SAIL (Rs 1,516 crore) and Oracle Financial Services Software (Rs 1,080 crore).
Additionally, about Rs 40,620 crore were mopped up through issuance of shares to promoters and shareholders on preferential basis.
A total of 20 issuance raised about Rs 12,350 crore during 2013 through QIPs or Qualified Institutional Placements, where already-listed companies sell shares to select institutional investors.
Moreover, about Rs 4,100 crore were raked in through 34 rights issues, where shares are issued to existing investors as per their holding at pre-determined price and ratio.
PTI