Monday, December 26, 2011

How Indian companies raised funds in 2011


There was a lull in the primary stock market -- where companies raise funds through the sale of shares via instruments like IPOs -- and it was mostly ECBs that was sought to meet the funding requirements of businesses during 2011.
Most companies knocked on the doors of overseas creditors to expand their businesses in 2011. But in an ironic turns of events, once-attractive-looking foreign debt instruments proved to be the nemesis of Indian companies. Most companies with foreign debts are now burdened with huge debt overruns due to a hardened US dollar and tough global economic conditions.

There was a lull in the primary stock market -- where companies raise funds through the sale of shares via instruments like IPOs -- and it was mostly ECBs (External Commercial Borrowings) or foreign debt that was sought to meet the funding requirements of businesses during 2011.

Nevertheless, the total of Rs 1,80,000 crore worth of fresh capital raised by the Indian companies from equity and debt markets during 2011 was way below the record level of over Rs 3 lakh crore in 2010.

Capital was mostly mopped up mostly via debt because of market downtrend that made it difficult to raise funds through the sale of shares, and the trend could impact the business expansion plans of companies, as well as the industrial production and GDP numbers of the country, experts say.

Nearly Rs 22,690 crore was raised from the equity markets this year, a little above 10 per cent of the record fund-raising of Rs 2 lakh crore in 2010.

The weakness was seen across segments, including Initial Public Offers (IPOs), Follow-on Public Offers (FPOs), Qualified Institutional Placement (QIPs) and foreign depository receipts (ADRs/GDRs).
Even in overseas debt markets, Foreign Currency Convertible Bonds (FCCBs) did not find many takers, as these are linked to the equity markets.

ECBs provided the only silver lining and the funds raised through these instruments, as well as the number of these issues, witnessed a sharp jump in 2011.


External Commercial Borrowings (ECB):

# 2010 saw an estimated 810 ECB offerings against 672 in 2010.
# The amount of debt raised through these instruments rose to $30 billion from $22 billion in 2010.


Public offers - Big year of small issues:

# In 2011, 39 public issues, comprising 37 IPOs and two FPOs, collectively raised about Rs 14,112 crore
# In 2010, a total of 70 public issues (62 IPOs and eight FPOs) together raised about Rs 71,114 crore
# Of the 39 public issues, only nine traded above their issue price, 30 other stocks traded below their issue prices
# Overall, the public issue market in 2011 has seen a wealth erosion of over Rs 4,000 crore, representing a mark-to-market, or notional loss, of 29 per cent
# The entire year saw just one PSU offering - Power Finance Corp (PFC), which also happened to be the biggest public offer of the year at Rs 4,660 crore.
# In 2010, nearly Rs 50,000 crore, was raised through the government's divestment in the public sector. State-run Coal India came out with the largest-ever
public issue in 2010 and raised more than Rs 15,000 crore
# FPOs by Tata Steel and Power Finance Corp accounted for the major chunk of the funds raised (over Rs 8,000 crore)
# 17 offerings had a size less than Rs 100 crore and just three were above Rs 1,000 crore
# At least 28 IPOs (looking to raise more than Rs 32,000 crore) were cancelled by the respective companies due to sluggish market conditions


Qualified Institutional Placements (QIP):

# There were not many takers for QIPs, where already-listed companies sell shares to select institutional investors
# A total of eight companies together raised about Rs 3,451 crore during 2011 through QIPs as compared to Rs 28,339 crore raised in 2010

Foreign depository receipts (ADR/GDR):

# No ADRs were issued in 2011
# There were 12 GDR issuances, which raised Rs 1,156 crore ($220 million). This was almost 75 per cent lower than the funds raised through GDR issues in 2010

Foreign Currency Convertible Bonds (FCCB):

# A total of about Rs 441 crore ($80 million) was mopped up through 10 FCCB issues in 2011
# In 2010, 13 FCCBs raised $1.55 billion