Posts Tagged ‘GDRs’

Corporate India set to prefer QIPs for Funds Raising in 2010

Corporate India set to prefer QIPs for Funds Raising in 2010

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Merchant bankers are of view that Qualified institutional placements (QIPs) are expected to still be the preferred route to raise money in 2010.

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Earlier, QIPsย  had gained traction during the middle of the year but ran into valuation headwinds in the last quarter of 2009.

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In 2009, Indian companies had raised close to Rs 33,000 crore by way of 45 QIP issuances.

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Also, about 33 QIP issuances are trading above the issue price, while 12 issuances are trading below the issue price.

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2009 was the year of the QIPs.

QIPs are expected to rule the roost, as there is serious interest and appetite in the overseas markets for instruments like converts/ADRs/GDRs.

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QIP, which was introduced in May 2006, picked up momentum in 2007 and then stagnated in 2008 when the market was in a bear grip.

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Delhi-based real estate company Unitech successfully raised $325 million through a QIP in mid-April 2009.

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Later, Indiabulls Real Estate and PTC India raised Rs 2,657 crore and Rs 500 crore, respectively, through such placements.

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QIP is a private placement by which a company sells its shares to qualified institutional buyers (QIBs) on a discretionary basis with the two-week average price being the floor.

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In a QIP, unlike an IPO or PE investment, the window is shorter (four weeks) and money can be raised quickly.

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According to a study by SMC Capital, the 45 QIP issuances have resulted into a mark-to-market (MTM) return of about more than 21.60 per cent, amounting to a profit of about Rs 7,050 crore.

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Some of the QIP issuances trading significantly above the issue price are Unitech (first round of QIP issuance), Emami, Shree Renuka Sugars, HCC , United Spirits, Dewan Housing, etc.

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Those trading below the issue price are Network 18 Fincap, REI Agro, Indiabulls Financial Services, Punj Lloyd, Delta Corp.

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โ€œThe overall positive listing performance of QIPs in 2009 will encourage investors as well as Indian corporates to access this route for fund-rising in an aggressive manner,โ€ says Jagannadham Thunuguntla, equity head, SMC Capitals.

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QIPs had hit a pause button when a large percentage of them ran into valuation headwinds, resulting in companies raising a much smaller amount than what was initially proposed.

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QIPs account for 60% of funds raised by India Inc

Qualified Institutional Placements (QIP) contrib-uted Rs 6 out of every Rs 10 raised by Indian companies from domestic sources in January-November 2009. Simply put, Indian companies raised Rs 47,419 crore from domestic sources in the 11 months of this year with QIP funds accounting for Rs 28,726 crore (about 60 per cent).


In the same 11 months of 2008, India Inc raised Rs 2,104 by means of QIPs out of the total Rs 48,807 crore garnered from domestic so-urces, shows a study by New Delhi-based SMC Capitals. This means that in 2009 QIPs account for more than half of total funds raised. Just to put the things in perspective, QIPs am-ounted for only 4.3 per cent of the funds raised during January to November 2008. This underlines the kind of domination QIPs have sho-wn in 2009; and QIPs have truly come to the rescue of cash-starved Indian corporates, said Jagannadham Thun-uguntla, Equity Head at SMC Capitals.

The funds raised thro-ugh IPOs as a percentage of total funds raised through domestic sources is to the tune of 31.7 per cent during January-November, at Rs 15,043 crore compared to that in January-November 2008, which was 34.8 per cent at Rs 16,995 crore, supported heavily by the Reliance Po-wer mega IPO of 2008. The funds mopped up from ADRs/GDRs have jumped up by more than 29 times from $0.1 billion in January to November 2008 to $ 3.15 billion in January to November 2009.

Bharti-MTN Deal May Hit Turbulent Weather with New Takeover Norms in Place!!

MTN-Bharti-Deal-in-Danger1

The $23-billion equity swap deal proposed by Bharti Airtel and South Africaโ€™s MTN may hit turbulent weather with Indiaโ€™s capital markets watchdog amending the merger and takeover norms involving international transactions, experts said Tuesday.

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In a move that surprised the corporate sector, the Securities and Exchange Board of India (SEBI) Tuesday said the mandatory open offer norm will be triggered even if the overseas equity holdings, in the form of global depository receipts or American depository shares, exceed 15 percent of the total paid-up capital of the target company.

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Earlier, the open offer was mandatory only when the acquisition of shares in the target company exceeded 15 percent during transactions entered into within the country, either through stock market operations or through preferential deals.

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In the Bharti-MTN deal, the two sides proposed to exchange shares in addition to payout of cash that exceeds 15 percent.

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Bharti had proposed to buy 36 percent of the South African company by offering shareholders half a Bharti share, whereas MTN was to get a 25 percent stake in the Indian telecom major for $2.9 billion by issuing global depository receipts.

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โ€œIn its existing form, the Bharti-MTN deal will become more complicated because of this amendment. The dynamics have changed and both MTN and Bharti will have to go back to the drawing board to see the deal through,โ€ said SMC Capitals equity head Jagannadham Thunuguntla.

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As per the existing provisions of the SEBI takeover code, no acquirer can buy shares of 15 percent or more in a listed company without making an open offer to acquire a minimum of 20 percent of such listed companyโ€™s shares from the public shareholders.

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Announcing the changes in the takeover code, SEBI chairman C.B. Bhave also said that there would be no retrospective effect on earlier deals because of this amendment.

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As IPO Market Falters,Companies Eye New Funds !!

Market falters

The post-listing dismal performance of the initial public offering ( IPO) of public sector power major NHPC Ltd is set to force many companies to rework their fund- raising strategies in the coming months.

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Qualified institutional placements (QIPs), global depository receipts (GDRs) or those shares issued to overseas investors and listed on exchanges abroad are likely to be the most favoured means for these purposes, leading investment bankers said.

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Some of the companies are already planning to revise their issue prices downwards to ensure that offerings will not fall through.

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Oil India Ltd (OIL), which is open for subscription now, is the first to draw lessons from the NHPC episode and revise its issue price.

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OIL has revised their price band to Rs 950- 1,050 per share, from Rs 1,250- 1,400, after the NHPC episode as per few bankers.

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NHPC fixed the price of its IPO at Rs 36 per share last month.

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Though the stock listed on September 1 at eight per cent premium to the issue price, at Rs 39, it closed just 70 paise or 1.94 per cent above the issue price.

Over the last two days, the premium further narrowed to just 10 paise.

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Jagannadham Thunuguntla, equity head of SMC Capitals Ltd, cites heavy selling, coupled with no follow- up buying as the reasons for the lacklustre listing of NHPC.

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NHPC’s IPO price was 30 times its earnings per share (EPS).

“In fact, well- established companies like NTPC are available at much lower valuations. Hence, there was no follow- up buying from the investors on NHPC listing,” Thunuguntla explained.

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Further, majority of the oversubscription is not due to genuine investor interest but is due to the borrowed funding through ‘IPO financing“.

Naturally, all such investors were forced to sell on the day of listing as these involve a lot of interest cost. This resulted in heavy selling on the day of the listing,” he added.

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After the market rebound since March 2009, fundstarved companies started tapping the market.

And when the elections gave a more convincing victory to the UPA combine, the market gathered greater strength.

Since March, companies were able to raise funds to the extent of Rs 21,191 crore through 22 QIPs; and $ 1.88 billion through four GDRs/ ADRs (funds raised from US- based investors and listed in the US).

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However experts maintained that these are the sources of funds for which few institutional investors are to be convinced, rather than working on creating confidence among the whole investor community.

At the same time such companies should have a high corporate governance track- record as well.

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