Securities and Exchange Board of India’s move on Thursday to liberalise equity issuances by companies will give a much needed impetus to the muted deal environment in the country, investment bankers feel.
For more than last 18 months, the capital markets have lost sheen driving issuers away from the market. “We have seen more than 70 per cent drop in the volumes of equity capital markets in last 18 months and it was high time the capital markets regulator intervened,” an investment banker, who helps companies go public, said on condition of anonymity.
In a market where investment banks have been reluctant to launch a deal and test waters, measures to facilitate initial public offerings, follow-on public offerings, rights issue and qualified institutional placements have been cheered by investment bankers.
So will this move facilitate a surge in issuances? “Absolutely,” says the equity capital markets head of one of the domestic investment banks. According to him, there were many companies siting on the fence waiting for markets to revive to raise capital. SEBI’s move to lower the minimum public float of market capitalisation of companies willing to raise money through FPOs and RIs to Rs 3,000 crore will help a lot of banks to fast track their RIs and FPOs. “There are financial institutions that are capital hungry and waiting to raise money from the equity markets. The liberalisation of rules regarding FPOs and RIs under fast track route will help them meet their needs and the market will revive,” the banker added.
Earlier the minimum free float requirement of market cap for companies under the fast track route was Rs 5,000 crore.
Many believe markets were waiting for a strong stimulus to revive and this could very well be it. “We will see host of QIPs hit the market with the change in pricing guidelines helping a lot of companies to derive at a meaningful offer price,” the banker quoted above said. On Thursday, after its board meeting in Mumbai, the capital markets regulator allowed companies to offer a five per cent discount to the two weeks average stock price of the company in a falling market, one of the major concerns of issuers till now.
With the June 2013 deadline to comply with the minimum 25 per cent public shareholding norms nearing, promoters are toying with different ways and means to bring down their stakes in companies.
“Due to unfavourable market conditions many promoters could not dilute their stakes. Now we could see some of them taking advantage of better market conditions and other windows of opportunities such as secondary block trades, QIPs, FPOs and rights issues,” said the chief financial officer of a MNC company waiting to pare stake.
(Edited by Prem Udayabhanu)