Equity mop up by PSUs at record this fiscal at Rs 535 bn through IPOs, QIPs

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Public sector undertakings (PSUs) have mopped up about Rs 535 billion by way of initial public offerings (IPOs) and qualified institutional placements (QIPs) this financial year, a record high. The amount raised is more than the combined amount garnered in the previous 10 financial years.

Seven companies tapped the market for an IPO to garner about Rs 300 billion. The sustained uptick in the secondary market combined with sizeable domestic flows and help from Life Insurance Corporation (LIC) has aided PSU share sales, said experts.

The largest offering this financial year was that of re-insurer General Insurance Corporation of India (GIC Re), which has garnered Rs 112.56 billion. GIC Re is followed by New India Assurance (Rs 95.85 billion) and Hindustan Aeronautics (Rs 41.44 billion).

Of the four PSUs that got listed this financial year, Hudco and Cochin Shipyard are trading in the green with gains of 11 per cent and 16.6 per cent, respectively. GIC and NIA, on the other hand, have shed 22.6 per cent and 15.4 per cent, respectively.

"The wave of strong domestic liquidity and the buoyant sentiment in the secondary market has helped prop up the demand for IPOs this fiscal," said Narayanan Sadanandan, executive vice-president, SBI Capital Markets.

The pipeline for PSU IPOs may remain strong in the coming months. The Department of Investment and Public Asset Management (DIPAM) Secretary Neeraj Gupta had reportedly stated last month that as many as eight public sector companies could tap the market for IPOs. Of these, Hindustan Aeronautics, Bharat Dynamics and Mishra Dhatu Nigam have already come to the market.

Between FY09 and FY16, PSUs had mopped up Rs 272.3 billion by way of IPOs. The bulk of the amount was garnered by Coal India, the country's largest share sale till date, totalling in excess of Rs 151 billion and power producer NHPC which collected Rs 60.4 billion.

Apart from IPOs, as many as seven public sector banks tapped the market to raise money via QIPs. The amount raised in FY18 totalled Rs 245 billion, more than twice the amount of Rs 109 billion garnered between FY09 and FY17. SBI was the largest QIP at Rs 150 billion followed by Punjab National Bank (Rs 50 billion) and Union Bank of India (Rs 20 billion).

In the beginning of last fiscal as many as eight public sector banks - including the likes of State Bank of India (SBI) and Bank of India (BoI) - had taken board approvals to raise fresh capital aggregating over Rs 350 billion, while another five had informed stock exchanges that their boards would consider capital raisings in the coming months.

The banks' fund-raising plan was bolstered by the government's recapitalisation plan announced in October 2017 to infuse Rs 2.11 trillion into PSBs. "The recapitalisation programme for this fiscal, will improve the financial risk profile of these banks and also help them meet Basel III regulatory capital norms, and provide cushion against expected rise in provisioning for non-performing assets (NPAs)," said in a recent research note.

QIPs of PSBs amounting to Rs 200-250 billion had hit a wall in 2016 as a steep correction in their share prices and the bad debt overhang spooked investors.