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Public equity issues mobilise record Rs. 69,192 crore in 2010: PRIME

After a dull 2008 and 2009, public equity issuances, comprising initial public offerings (IPOs) and follow-on public offerings (FPOs), witnessed the highest-ever mobilisation in 2010 at Rs.69,192 crore, according to Prithvi Haldea, Chairman and Managing Director of PRIME, the premier database on the primary capital market.

This is three-and-a-half times higher than the previous year (Rs.19,567 crore) and 53 per cent higher than the earlier record year of 2007 (Rs.45,142 crore).

This huge raising, according to Mr. Haldea, was possible because of the concerted and successful public sector undertakings (PSUs) issue programme.

Three IPOs and six FPOs, through disinvestment of Rs.42,056 crore and fresh capital raising of Rs.6,951 crore, collectively realised Rs.49,007 crore.

The comparative figure for 2009 was Rs.8,816 crore through two IPOs. In addition, two public sector banks raised Rs.796 crore. As such, over 72 per cent of the year's total mobilisation was accounted for public sector undertakings (PSUs).

By number of issues, the year closed at 72, over three times higher than 21 in 2009, though much below 106 issues in 2007, or several earlier years which had seen much higher number of issuances. Since the previous two years were subdued, many companies had allowed their SEBI approvals to lapse, and had refiled. Of the 72 issues, as many as 13 were cases of refiling.

According to PRIME, the year witnessed 64 IPOs (previous year 20) and 8 FPOs (previous year 1). Since 2008, FPOs are no longer a preferred route for raising money. In 2008 and 2009, there was only one FPO each. The year 2010 did see eight FPOs but six of these were of PSUs. On the other hand, fixed price IPOs are almost non-existent; 62 of the 64 IPOs were bookbuilt, and only two, both small, were fixed price.

Largest-ever IPO

Significantly, the year 2010 also witnessed the largest-ever IPO — from Coal India for Rs.15,199 crore, which single-handedly accounted for 22 per cent of the year's total mobilisation.

In fact, the year was dominated by large issues; there were as many as 13 issues of over Rs.1,000 crore each compared to five in the preceding year, accounting for over 80 per cent of the year's mobilisation. On the other hand, there were only nine issues of less than Rs.50 crore and, like the previous year, not a single issue of less than Rs.10 crore, the smallest issue being of Rs.29 crore. The market for small companies, therefore, continued to be non-existent, and SEBI's efforts to promote SME exchanges have been a non-starter.

Accordingly, the average deal size continued to be high at Rs.961 crore, even slightly higher than Rs.932 crore in 2009 (but significantly higher than Rs.445 crore in 2008 and Rs.426 crore in 2007).

Top five issues

The top five issues were all from the public sector. Following Coal India were NMDC (Rs.9,930 crore), NTPC (Rs.8,480 crore), Power Grid (Rs.7,442 crore) and REC (Rs.3,530 crore). The largest private sector issue was from Jaypee Infratech (Rs.2,262 crore).

According to Mr. Haldea, while the year recorded the highest-ever mobilisation, which reflects both the interest and depth in domestic as well as foreign investors in the Indian market, what should be noted is that most of it did not represent growing corporate activity.

Only about one-third was through issuance of fresh capital, which typically goes into productive assets as against offers for sale where the proceeds goes to the seller — government, promoters, funds and other investors — and not to the company. Significantly, besides the Government, offers of sale came from promoters and PE firms, using the market to exit for an aggregate amount of Rs.3,115 crore in as many as 16 issues.

Unlike the 2005-07 period, which had seen a dominance of the real estate sector, the year 2010, like 2008 and 2009, continued to be severe on this sector, with its share being only seven per cent of the funds raised, according to PRIME. The domination in 2010 was by the mining/minerals, sector which through three issues cornered a 38 per cent share, followed by the power sector with a 26 per cent share.

The response to the issues of the year was reasonably strong according to Mr. Haldea. As many as 30 issues received oversubscription of more than 10 times. What was heartening was that the biggest IPO ever-Coal India got oversubscribed by over 15 times. The highest oversubscription was witnessed by Persistent Systems at 93 times.

On the other hand, as many as 19 issues managed less than 1.5 times oversubscription, which included two mega FPOs of NMDC and NTPC as well as the largest private sector issue of Jaypee Infratech.

The year also witnessed cancellation of two issues because of poor response and withdrawal of one issue prior to its opening. Moreover, the initial offer price was rejected by the market in the case of three companies (Aqua Logistics, BS Transcomm and Claris), where the issuers were forced to revise their offer price.

The year 2010 also broke another record, according to Mr. Haldea, that of the highest amount ever collected as application money. Coal India, with Rs.2.33 lakh crore beat Reliance Powers' record of Rs.2.25 lakh crore.

Anchor investors

As per PRIME, the new concept of Anchor Investors instituted by SEBI in 2009 had seen nine companies commit to nearly 30 per cent of the QIB portion and collectively taking up a high 17 per cent of the aggregate issue amount. In 2010, 26 out of 62 bookbuilt IPOs had anchor investors, again committing to nearly the same amount.

ASBA

According to Mr. Haldea, ASBA (applications supported by blocked amount) facility failed to make its mark even in 2010. Introduced in 2008 for the retail segment, 2009 saw only 10 per cent of the retail applications through ASBA. This number grew still only to 19 per cent in 2010. This facility extended to high networth individuals (HNIs) in 2010 saw 25 per cent of them using ASBA. Later in the year, extended to QIBs, ASBA was used by nearly 51 per cent of the applicants.

Bond issue

The year, like the previous year, saw some mobilisation through bonds, according to PRIME. While 2009 had seen three companies raise Rs.3,500 crore, 2010 saw five companies issue bonds worth Rs.2,727 crore.

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