IPO financing set for a boost amid spate of issues

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The successful Initial Public Offering (IPO) of shares of Equitas Holdings has helped revive the demand for IPO loans, provided by NBFC (non-banking financial companies) divisions of domestic brokerages.

Microfinance lender Equitas Holdings raised about Rs 2,200 crore through its share sale that closed on April 7, subscribed more than 17 times at a price band of Rs 109-110 per share. The non-institutional investor (NII) portion, which sees participation from wealthy investors, among others, was subscribed 57 times. Experts expect the NII portion of coming IPOs of Thyrocare Technologies and Ujjivan Financial Services to see similar demand.

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Ujjivan is trading at a premium of Rs 40-45 a share in the grey market. Similarly, diagnostics company Thyrocare, which plans to raise Rs 480 crore, is commanding a premium of Rs 220-225 per share in the grey market. Ujjivan and Thyrocare have set their price bands at Rs 207-210 and Rs 420-446, respectively.

The grey market is an unofficial market where IPO shares are bought and sold before they become officially available for trading on the stock exchange. The higher the grey market premium, the greater is the demand that is likely to be generated for the actual IPO.

“The recent IPOs are leaving enough money on the table for investors, which has created sizeable demand for upcoming issues,” said Prasanth Prabhakaran, head, retail broking, IIFL.

According to sources, NBFC arms of brokers such as Edelweiss, IIFL, JM Financial, Reliance Securities, Kotak Securities, and Aditya Birla Money, collectively conducted about Rs 18,000 crore of financing business from the Equitas IPO.

Equitas Holdings made a strong debut on the bourses last week, making gains of 34 per cent, before ending at Rs 136, up 23 per cent over its issue price of Rs 110 per share.  Accounting for the funding cost, high net worth individuals (HNIs) made gains of Rs 19-20 per share in the Equitas issue, said experts.

IPO loans are typically availed of by HNIs who are confident of a company listing at a significant premium, giving them the scope to exit the stock in the near future. The interest rates quoted for Equitas Holdings was in the range of 7.5-8.5 per cent.

“Funding demand and interest rates largely depend on the subscription figures that build up during the course of the IPO. The shorter listing period of an IPO makes the process of financing from an NBFC lucrative both to the investor as well the financier,” said Prabhakaran.

The previous three issues of Quick Heal, HealthCare Global and Infibeam Incorporation had made a dismal debut on the bourses, with the first two ending below their respective issue price.

Notably, in December, NBFC arms of brokers collectively did business of about Rs 30,000 crore from Alkem and Dr Lal PathLabs, with the former contributing about two-thirds to the financing book. The issues were subscribed 44 and 33 times, respectively. Alkem’s share sale was subscribed 130 times in the HNI segment and nearly three times in the retail portion. Dr Lal’s share was subscribed 61 times by HNIs and over four times by retail investors.

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