Posts Tagged ‘QIPs’

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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Retail Investors Turn Cautious Towards IPOs

Retail Investors Turn Cautious Towards IPOs

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Aggressive IPO pricing and poor post-listing performances have made retail investors extremely cautious this year.

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Of the Rs 18,407 crore collected through IPOs, the retail investor portion was subscribed 1.86 times on an average, according to a research report by SMC Capital.

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Qualified institutional buyers‘ portion was subscribed by 11.42 times and high net worth individuals’ portion by 8.49 times.

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IPOs this year were subscribed 7.64 times.

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Of the 19 IPOs, the retail portions of five issues were not even fully subscribed, while five just about managed to get subscribed.

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Many retail Investors have decided against putting money into recent IPOs after looking at the post-listing performances of stocks that were listed earlier.

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Only shares of six companies are trading above their issue prices โ€“ these include Mahindra Holidays, Oil India and Cox and Kings (India).

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A lot of investors had saved up, especially for the NHPC IPO.ย  But when it listed poorly these investor must have suffered hugely.

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As per the market experts , a lot of the IPOs that came out this year have been highly priced, which has made the already skeptical retail investor stay away from the primary market.

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Bunch of retail investors are looking at โ€œshort-term gainsโ€, so they now prefer to invest their money in the secondary markets rather than in IPOs, market experts feel.

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If one goes by the DRHPs filed with SEBI, there are approximately Rs 29,000 crore worth of IPOs in the pipeline, said Mr Jagannadham Thunuguntla, Equity Head at SMC Capital.

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India’s United Spirits to Sell New Shares to Cut its Debt :)

India's United Spirits set to sell new shares to institutions to help cut its debt

India's United Spirits set to sell new shares to institutions to help cut its debt

India’s United Spirits is set to sell new shares worth about $300-350 million to institutions to help cut its debt, after efforts to sell a stake to private equity firms and Diageo failed.

The world’s third-largest spirits maker by volume is set to place the shares with institutions (QIPs) as early as this week, three sources with direct knowledge of the deal said.

“The market is good enough for a share sale. Why opt for a PE firm that buys at the same price and adds little value otherwise,” one source said.

United Spirits has debt of 65 billion rupees ($1.4 billion), which it took partly to fund the acquisition of scotch whisky maker Whyte & Mackay, and has said it aims to cut this to 40 billion rupees by the end of March 2010.

Chairman Mallya said in early September he planned to cut the firm’s debt by end October.

KINGFISHER FACTOR

In June, United Spirits sold treasury stock, carried on its books from past mergers and acquisitions, at an average 900 rupees a share to raise about $186 million, which it used to repay some of its loans.

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It still has over 8 million shares of treasury stock which it can sell or issue fresh ones.

Sources said United Spirits would opt for the latter. It got shareholders approval last month to raise up to $350 million.

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“Private equity investments through preferential allotment have a lock-in of one year, there’s more due-diligence involved and they also look for board seats,” said Jagannadham Thunuguntla, equity head of investment bank SMC Capitals.

“Institutional investors coming through the QIP route have no such hassles, it is also faster,” he added.

United Spirits’ loss-making group firm and airline operator Kingfisher Airlines which is also looking to raise funds, could be a possible factor in PE firms being hesitant to invest in the company.

United Spirits has pledged shares to secure loans for Kingfisher Airlines.

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Valuation, a major reason for the break-down of talks between it and Diageo is another factor to watch out for as its margins come under pressure from a rise in molasses prices due to the poor sugarcane crop, analysts said.

Shares of United Spirits, valued at $2.1 billion, have risen just 3.3 percent so far this year compared to a 76 percent rise in the main index.

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QIPs Outstripped PE Funding & IPOs in Fund Raising Process ;)

QIP-investments-outpace-PEfunds

Qualified institutional placements (QIPs) have outstripped private equity (PE) funding since January by at least eight times, making it by far the most popular fund-raising route for firms this year.

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QIPs raised at least Rs. 21,209 crore since January this year, while PE funds invested only Rs. 2,574 crore in listed firms.

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QIPs have almost raised more than twice of initial public offerings.

A QIP is a private placement by a listed company of shares or securities convertible to equity with qualified institutional buyers approved by market regulator Securities and Exchange Board of India(SEBI).

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Data from Delhi-based investment bank SMC Capitals Ltd shows another 48 QIPs worth Rs.43,891 crore are in the pipeline.

But analysts do not expect a significant rise in the number of, or funds through, PE deals this year.

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Typically, PE investments take up to six months to complete, whereas a QIP can be done in up to four weeks, making the fund-raising process faster and more reliable since the institutional buyers are selected carefully.

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Also, in a QIP, the institutional buyers rarely seek a seat on the company board, or management control, a common practice in large PE deals.

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Since PE is perceptionally intrusive for promoters, QIP serves as a good alternative.

However this QIP structure is liked by investors and firms as in a QIP the window is shorter and money can be raised quickly.

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While real estate firms typically prefer QIPs for their need of capital at short notice, the companies currently waiting to do QIPs are across sectors, including telecom, entertainment, retail and information technology.

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In line for QIPs are Reliance Communications Ltd, Pyramid Saimira Theatre Ltd, Pantaloon Retail (India) Ltdย  and few more.

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Some firms, though, have taken both routes for their funding needs.

Historically, PE investments in India have been in the form of private investments in public enterprises, or PIPEs, which also happen to the only firms eligible for QIPs.

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โ€œPrivate equity investors have missed the boat,โ€ Jagannadham Thunuguntla, head of SMC Capitals, said in a statement.

Companies that are in the pipeline for QIPs may also look for American depository receipts or global depository receipts for funds, heย  added.

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Positive Returns keeps Investor Interest in QIPs, Intact :)

QIPs

Thanks to a strong broad market rally, the share prices of the companies that have raised money through qualified institutional placements (QIPs) have recovered.

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According to SMC Capitals, of the 24 companies, which raised money through QIPs, only five gave negative return while the remaining 19 stocks were trading well above their QIP issue prices.

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However, they have underperformed the BSE benchmark index.

As against 62 per cent return posted by the BSE Sensex (since the beginning of the current fiscal), the companiesโ€™ return stood at just 35 per cent.

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โ€œOn an aggregate, the current mark-to-market (MTM) value of all QIPs put together works out to an amount of Rs 23,208 crore, marking current MTM return of 35.17 per cent,โ€ said a SMC Capitals study.

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โ€œThe biggest contributor to the positive performance is the first QIP issuance by Unitech. The issuance was made at Rs 38.5 a share and the current market price is Rs 113.4, indicating a current MTM return of 194 per cent,โ€ the report said.

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Other prominent QIP issuances include Indiabulls Real Estate, Shree Renuka Sugars, HDIL and Emami.

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A day before, the share prices of Network 18 Fincap, Bajaj Hindustan, and REI Agro were trading below their QIP issue prices.

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Such positive returns will make sure that investor interest in QIPs will continue and many more companies will raise fund through this route, said Mr Jagannadham Thunuguntla, Head of Equities at SMC Capitals.

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FII Net Inflow Crossed $8 Billion in 8 Months :)

FII Net Inflow

FIIsโ€™ net investments in Indian equities crossed $8 billion in calendar 2009 with foreigners buying stocks worth $274 million on Friday.

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At the end of July, net inflows from FIIs stood at $7.3 billion and it took another 20 trading sessions before net inflows crossed the $8-billion mark, the first time this year.

The sensex has risen 65% till now in 2009.

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Last year, hit by recession back home FIIs took out nearly $12 billion from Indian stock markets but with sentiment improving from March this year, they have returned with net investment amounting to $9.3 billion, Sebi data shows.

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Data include stocks bought by FIIs through QIPs and public offers, buybacks and also investments in unlisted companies, fund flow trackers said.

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As per experts this phenomena has happened because India is being considered as one of the better performing market since the October crash.

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Experts maintains that despite immediate headwinds such as impact of poor monsoons on agriculture and uncertain rural economy, the growth potential in the economy cannot be overlooked.

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“Investors will be looking for value and India could be very well the destination” experts pointed out.

With FIIs holding 16% of Indiaโ€™s biggest 500 companies, market experts believe FII holding may rival the 19.1% peak in 2007 as the third-largest Asian economy continues to grow at a decent pace.

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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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