The upcoming issues of Bharti Infratel and Care may help revive the moribund IPO funding business run by the brokerage arms of NBFCs to some extent.
According to industry observers, the two IPOs — especially that of Bharti Infratel — have evinced significant interest from rich investors and the NBFCs are advising clients to keep their loan books ready for the upcoming IPOs.
“There is a decent appetite for these issues,” said Ambareesh Baliga, an independent analyst. According to market participants, the demand for IPO financing depends on the valuation and quality of the issues involved.
Crisil has assigned an IPO Grade of 4/5 to the Bharti Infratel IPO, whose issue size is around R4,500 crore.
The grading indicates that the fundamentals of the IPO are ‘above average’ relative to the other listed equity securities in India. Brokerages have also recommended investing in Care, owing to its high margins and lower price-to-earnings multiple than it listed peers, Crisil and Icra.
High net-worth individuals (HNIs) borrow for a short term to punt in the market, typically 10-15 days from the last day of the issue. The interest rates currently quoted for these loans is 14-15%.
IPO loans are typically availed by those who are confident that the company will list at a significant premium, which will give them the leeway to exit the stock soon after it is listed.
“IPO financing works only if the financiers are convinced that the IPO will be subscribed at least five times. Else, there is a possibility that they could lose money,” said Baliga. Unlike in the past, though, the NBFCs will not be borrowing any money this time as they have sufficient idle cash lying on their balance sheets, according to industry participants.
Market participants are also of the opinion that the initial interest in IPO loans itself may not necessarily translate into the HNIs opting for the funding.
Investors typically wait till the last day of the issue before blocking their funds as they involve interest payment. “Many investors might choose not to punch in their bids through the funding route if the response on the first two days of bidding is not as per expectations,” said Girish Dev, director, Future Capital Securities.
“We will have to wait till the final hours of bidding to gauge the actual demand for IPO loans.”