Gujarat-based Astral Poly Technik, a leading maker of chlorinated polyvinyl chloride (CPVC) plumbing pipes (products which are fast replacing galvanised iron pipes in the construction industry), is starting to think “funding” rather than just business. The firm, which has an equity joint venture with US-based CPVC pipe maker Specialty Process LLC and a 35-40 percent market share in the CPVC segment, is planning to raise “long-term funds” after its board considered a proposal for this purpose in July.
Raising capital in the last three years would have been an ill-advised move for mid-cap Astral: Most capital markets, including India’s, were still reeling from the impact of the 2008 slowdown at the time. But after the Narendra Modi-led government was elected in May 2014—creating a significant shift in growth prospects and market sentiment—the Indian economy appears ready for a massive capital raising programme to help finance new projects and cut down debt which corporates had accumulated in their balance sheets.
The timing is optimal. India’s stock markets are at record highs and the euphoria of the secondary markets is likely to—as has been noted previously—spill over to the primary markets, bankers and analysts say.
Consequently, fund raising by Indian companies through the qualified institutional placements (QIPs) route has tripled to Rs 25,781 crore through 14 placements between January and August 2014, from Rs 8,008 crore through nine placements in the corresponding period last year, according to PRIME Database, which tracks capital markets. There are at least 68 other companies which have—in some cases dating back to 2012—either filed documents with market regulator Securities and Exchange Board of India (Sebi) or have announced their intentions for an initial public offering (IPO). Several are in talks with bankers to rework their markets entry strategy.
In the most optimistic case, if all these 68 companies come to the market, the estimated issue amount would be over Rs 44,000 crore, according to PRIME Database.
THE NEED TO DELEVERAGE
Private equity-backed companies will also come out with IPOs: They may not necessarily need to raise capital but will want to list the company, points out veteran PE player Bharat Banka of the Aditya Birla Group. “This achieves two goals: The PE player will get a chance to exit and it will help the company create a ‘permanent currency’ [as a listed entity].” Banka estimates that by 2016, corporates could raise $15 billion through the primary markets annually.
Public offerings are imperative for other reasons too. “The fund raising being seen now is largely towards two causes: Capital for growth and capital for deleveraging,” says Nilesh Shah, managing director and chief executive, Axis Capital. Deleveraging, or the process of reducing debt in one’s balance sheet by raising capital or selling assets or shares, has become critical for several firms after the 2008 downturn. As the promoter of a large company told a banker recently, “Bad times are those in which balance sheets get hurt. When the good times come, we should repair the balance sheets.”
SECONDARY MARKET SHEEN
INDIAN BANKS QUEUING UP
Correction: Indian travel startup MakeMyTrip raised $80 million, and not $80 billion, through a Nasdaq listing. The error is regretted.
(This story appears in the 19 September, 2014 issue of Forbes India. To visit our Archives, click here.)