The current crop of initial public offerings (IPOs) has not quite helped revive the demand for the IPO loans business run by the NBFC arms of brokerages. The Care Ratings issue saw some demand for such loans from a select set of high networth individuals (HNIs), but the Bharti Infratel issue proved to be a damb squib, according to sources.
“There was some demand for IPO loans for the Care Ratings issue, but it was confined to a few large-ticket purchases from select HNIs. Also, the business was largely concentrated with the NBFC arms of brokerages, such as JM Financial, Edelweiss and IIFL, which meant other NBFCs couldn't benefit much from the issue,” said a senior broker familiar with the developments in the IPO loan market. “The bigger disappointment, though, was that the Bharti Infratel issue found few takers for IPO loans among HNI investors,” he added.
“The loans given out for the Care issue were in the range of R2,000 to R2,500 crore. The demand was driven by expectations that the issue would list at a substantial premium and gain up to R200 within 2-3 days of listing,” said another broker. “The demand for Bharti has been quite low as investors are not expecting significant listing gains.”
With an issue size of about R4,500 crore, market participants had pinned their hopes on the success of the Bharti Infratel issue, which was expected to be subscribed more than five times at the least. The issue was oversubscribed 1.29 times as on 6 pm on Friday, as per details available on the NSE website. Crisil had assigned an IPO Grade of 4/5 to the Bharti Infratel IPO, which indicates that the fundamentals of the IPO are ‘above average’ relative to the other listed equity securities in India.
Domestic brokerages, though, were divided about the attractiveness of the Infratel issue even as most recommended investing in Care Ratings, owing to the latter's high margins and lower price-to-earnings multiple compared with listed peers, Crisil and Icra.
The Care Ratings IPO was subscribed nearly 41 times, with the non-institutional investors portion itself getting subscribed nearly 111 times. “The Care issue saw considerable demand from HNIs, but it was a small issue and, as such, it did not significantly prop up the IPO financing business. The business will revive only if a large issue such as Bharti Infratel garners significant demand,” said Sudip Bandyopadhyay, MD & CEO, Destimoney Securities.