Fund mop-up through IPOs, FPOs hits new 5-year low

Fund mobilisation through public offers in India have hit a new five-year low this year. This year saw companies raising Rs 16,927 crore through initial public offers (IPOs

) and follow-on public offers (FPOs), a decline of 63% compared with Rs 45,137 crore that was raised last year, says research firm Prime Database. The last time Indian companies raised less than Rs 20,000 crore in a single year was in 2003 when firms mopped up Rs 2,179 crore through 14 issues.

“The year began with an impressive line-up of offerings. But the global meltdown triggered a market collapse and sentiment reached such a low that there was no investor interest at any price,” said ICICI Securities senior vice-president Ravi Sardana.

Following the poor show of public offers and low-investor sentiment in the stock market, several Indian companies have withdrawn their plans to raise funds through new public issues.

The only significant factor in 2008, was the issue of Reliance Power, the largest ever IPO in India, which raised Rs 10,123 crore. This single IPO accounted for 60% of the year’s total fund mobilisation through public offers. As per the data compiled by Prime Database, there were only two issues of over Rs 1,000 crore each compared with six in 2007. In 2008, 22 of 38 issues raised less than Rs 100 crore, with 14 raising less than Rs 50 crore.

There was a significant decline in also the number of public issues this year. As against 106 public equity issues in the previous year, 2008 recorded only 38 issues, a drop of 64%.

This was partly due to the response from the public to the issues of the year, unlike 2007. Only six of the 37 IPOs received oversubscription of more than 10 times, compared with 50 out of 101 IPOs in 2007. Moreover, as many as 14 issues barely managed to get a one-time subscription. Worse, three IPOs had to be cancelled because of lack of response, including the Rs 5,436 crore issue of Emaar MGF and the Rs 564 crore issue of Wockhardt Hospitals.

According to Prime Database CMD Prithvi Haldea, “Unlike the preceding year, which had seen the real estate sector cornering 33% of the total mobilisation, this sector had only a 7% share in 2008. Power sector dominated 2008, which through two issues, cornered 65% share of the total fund raised. Among other sectors, banking had a 10% share raising Rs 1,639 crore.”