Despite the pessimism that prevailed, we were able to reopen capital markets
towards March-end, with a $300-million block for Standard Life in HDFC Life. We executed six capital market transactions in June, raising $8.5 billion. We have a strong deal pipeline.
What has underpinned deal-making in H1?
Global liquidity plays an important role, obviously. With the US Fed opening the tap, there has been a gush of liquidity around the world, including India.
tapping the markets are high-quality ones that have not been hit as severely by Covid-19. Investors are distinguishing between entities that have been hit severely and those well-placed to deal with the short-term disruption.
The third aspect is the willingness of investors to look beyond Covid-19 and back stories that will deliver long-term growth.
Capital raising has been restricted largely to blue-chip names. Will it get more broad-based?
In the broader market space, pricing will be important. Would it be possible to go for a qualified institutional placement at a 5 per cent discount for a firm hit badly by Covid-19? No, it will be difficult.
However, there is the option of an FPO that offers free pricing and, therefore, allows investment at a greater discount. Alternatively, one could opt for a rights issue. Investors will be value-conscious in case of firms that have seen severe impact.
Has the investor base shrunk following the pandemic?
Not really. We still see the same high-quality names. Flows into equity markets
remain strong. Even domestic MFs are willing to participate in high-quality names despite some deceleration in flows.
Will the IPO market revive soon?
It is difficult to say how many IPOs will get launched this year. Some issuers may decide to defer the listing, instead of going for it at beaten-down valuations, in case they are well-capitalised or have other sources of funding.
However, there are several quality issuers that may not have seen a huge impact, whom investors may be willing to give a fair value. We are working on a few such situations.
Why are we seeing an increasing interest in rights issues?
Rights issue has always been a difficult instrument. Effectively, it was one part of the capital market stuck in the pre-1990s era, with all the paper forms and signatures.
Last year, there were two large rights issues that made market participants and Sebi realise that the process needs an upgrade. To Sebi’s credit, they moved quickly and issued new regulations. During the lockdown, Sebi proactively moved to allow rights issue to be conducted on a fully electronic basis.
Further, rights entitlement trading — which was earlier a bespoke activity — has become convenient. Companies
will use the route more often. It offers full flexibility in terms of pricing and allows flexibility in terms of promoter participation. The disadvantage is that even though timelines have been compressed, it is still a long process, compared to QIPs and preferential allotments.
What have been the key themes so far?
The major one has been deleveraging. The RIL rights issue was an example. RIL set a target to become a zero-debt firm and it is amazing how quickly it has achieved it.
The second theme has been block transactions, where either the promoter or large investors take money off the table in an investment that has done very well. Standard Life selling in HDFC Life, and Blackstone selling in Embassy Reit were two examples. Most firms are focusing on getting their balance sheet right to deal with the situation. Growth capital is still limited.