IPO mkt to boom in second half

India Inc plans to raise Rs 77,500 cr, four times than that garnered in '08

Lisa Mary Thomson & Aman Dhall NEW DELHI

INDIA may be in the throes of a meltdown but slowdown may just be the last word in your thoughts if you look at the initial public offering (IPO) estimates for 2009. And it's not just doubling or tripling, India Inc may actually be gearing up to raise four times the proceeds it collected from the primary market in 2008.
    According to a Thomson Reuters study, India Inc is eyeing to raise as much as Rs 77,500 crore through public issues. This is in sharp contrast to 2008, when IPOs garnered only about Rs 22,000 crore. Even in terms of number of offerings, a growth of 20% is expected in 2009. While only 36 public issues were seen in action in 2008, the number is expected to reach 44 this year. Although India may see heightened activity in the IPO space, it may be dethroned from its second slot in the Asia-Pacific (APAC) region (with respect to IPO volumes). Of the Rs 470,000 crore projected to be raised in the APAC region through 275 issues, China is again poised to lead regional IPO volumes with proceeds of Rs 197,250 crore from 88 offerings. South Korea is, however, expected to take India's second position in the hierarchy with issuances worth Rs 101,500crore from 28 deals.
    But even as India slips into the third place, it is projected to capture over 16% of the IPO market in the APAC region. The most anticipated IPOs in India include UTI Asset Management, NHPC, Oil India and RITES. The study says Reliance Telecom's Rs 10,000-crore IPO is the most awaited in India, while in Korea it's Korea Development Bank's Rs 96,500-crore offering.
    Also, the proceeds from the IPOs in the APAC region in 2009 are expected to be thrice the amount collected in 2008. In 2008, IPO volumes in Asia totalled Rs 156,500 crore from 374 issues. This is down 68.3%, the lowest annual volume since 2002.
    Experts say the spurt in number of IPOs this year could be due to delay in offerings in an uncertain market in 2008. Around 83 IPOs, worth Rs 127,500crore, were postponed in Asia in 2008.
    According to Sanjay Aggarwal, executive director at KPMG, "Requirements for capital will be very high in the financial services sector, both for meeting capital adequacy norms for managing existing business as well as for growth. Further, various other sectors such as infrastructure, retail, telecom and power will also need significant amounts of growth capital to manage the growth and expansion even with the reduced growth levels." With Basel II norms expected to come into force in 2009, maintaining adequate capital reserves will become a priority for companies in the financial sector. MNCs seeking to de-list may also come up with rights issues or open offers.
    Ashvin Parekh, national leader of financial services, Ernst & Young expects revival to begin in the second quarter of the financial year 2009-10. "Around October we should see a warming up of economy with PE multiples stabilising," he said. All depends on secondary market
THERE is, however, a certain section that believes that there will not be large volumes in the IPO traffic in 2009. According to Prithvi Haldea, CMD, Prime Database: "When it comes to IPOs you need to have both issuers and investors. In the current situation, there is no dearth of issuers. The pipeline could even be Rs 300,000cr strong. The fact of the matter is that there are no investors and promoters cannot afford to sell equity so cheap." He also contends that the primary market is a subset of the secondary market and as long as there is volatility or a bearish trend in the secondary market, things will not work well in the primary market. Moreover, there is generally a time lag of at least two to three months between when sentiments improve in the primary and the secondary market. "Even if the secondary market were to improve overnight, it would take time for the effects to pass on to the primary market which indicates that the first quarter of 2009 will be a total write-off in terms of IPOs," adds Haldea. Hence, whether the primary market will improve in the second half of 2009 or not, will totally depend on the kind of activity that is expected in the secondary market. For the moment, even the secondary market doesn't seem to be displaying any signs of a changing tide.
    lisa.thomson@timesgroup.com