Lack of PSU divestment roadmap stalls IPO market

Jagannadham Thunuguntla, equity head of SMC Capitals.

In the absence of a roadmap for divestment of public sector units (PSUs), many private companies that were getting ready to raise funds through initial public offerings (IPOs) may now decide to wait. The market fall on Monday (the budget day) and Wednesday has made matters only worse.

However, investment bankers see light at the end of the tunnel in the finance minister Pranab Mukherjee’s announcement on the need for mandating a minimum 25 per cent public holding in all listed companies.

“Excitement is a bit down as there is no roadmap for PSU divestment. This initiative would have created an ecosystem for several public issues of private sector companies hitting the market,” said Jagannadham Thunuguntla, equity head of SMC Capitals.

“The divestment programme is unlikely to be as effective as was expected to be before the budget,” Thunuguntla added.

However, there is an air of expectation that companies would revive their plans to float initial public offerings (IPO) once the market revives.

The falling market, post-budget, has also put a question mark on the companies that were planning to raise funds through qualified institutional placements (QIPs), is a corporate fund raising instrument that enables completion of the process within a month against four months taken for a typical IPO.

According to a report published by Enam Securities While eleven companies have raised Rs 12,000 crore through QIPs before the budget, about 20 companies are planning to raise Rs 36,500 crore through this route, post- budget.

This list is liberally sprinkled with real estate companies, which have been facing a severe funds crunch since the outbreak of the global financial crisis in September 2008.

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