Fresh issuance in IPOs takes a back seat

A large proportion of the public issues this year have been in the form of offers for sale (OFS), by which shares in firms changed hands but no fresh capital accrued to the companies concerned, and as a result little has gone towards business expansion. 

Of the Rs 25,163 crore raised through IPOs so far this year, 65 per cent, or Rs 16,286 crore, was on account of OFS. The tally makes 2016 the highest ever for secondary exits through IPOs by private players. In 2010, Rs 20,534 crore out of Rs 37,535 crore raised through IPOs was OFS; however, Rs 15,000 crore of it was on account of the government’s disinvestment in Coal India.

Some of the bigger issues had a significant OFS portion. For instance, the Rs 6,056-crore IPO of ICICI Prudential Life Insurance was a complete OFS where the parent company had sold more than 12 per cent of its stake in the insurer. Similarly, of the Rs 1,040-crore IPO of Mahanagar Gas was a complete secondary issuance with promoters GAIL and Royal Dutch Shell paring their stakes through the issuance. Even issues like Ujjivan Finance and RBL Bank had significant OFS component. 

Experts say secondary exits were a highlight of this year. Given the economic uncertainty, not many companies want to raise capital for expansion and going ahead too many IPOs could be largely OFS, they add.

Several private equity (PE) players such as Government of Singapore, Motilal Oswal PE fund, Gaja Capital, Capvent India and Standard Chartered Private Equity have managed to liquidate their holdings through IPOs during the year.

“Lot of corporates had raised required capital through private equity (PE) funds during the period between 2010-2013. Although PE funds are long term investors, they would eventually seek exits. In 2016, we have seen them make partial exits from various companies,” said Gaurang Mehta, executive director, investment banking, Axis Capital.

Mehta added that this was not essentially a negative sign for markets as in majority of the cases companies didn’t need any fresh capital and hence didn’t dilute their stakes.

The trend of providing exits to investors through IPOs gained momentum in 2015. More than 60 per cent of the Rs 13,614 crore raised through IPOs during 2015 was on account of OFS. According to experts, the rally in the market since late-2013 and adequate liquidity, has provided a platform for PE exits.

Investment bankers say with the emergence of PE funds as the frontline investors in startups, the shape of capital markets has witnessed a significant change in the last two years.

“Companies are no longer considering IPO route for initial fund raising. In the beginning stages they prefer to tap PE funds rather than public institutional investors for capital expansion. This is also a key reason behind buoyancy in the PE and VC space,” said Ajay Garg, managing director, Equirus Capital.

According to a section of capital market experts, this trend is also on account of slowdown in capital expansion plans of India Inc. Due to volatility in the markets and uncertainty over the outlook of various sectors, lot of companies are learnt to have postponed their fund raising plans.  The fund raising through qualified institutional placements(QIP) has fallen by three-fourth during 2016 to Rs 4,480 crore while rights issuances are dropped to 13-year low of Rs 1,913 crore during the year.

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