Going by the recent trend in the primary market, it’s not surprising the government is hoping to mop up more than the Rs 63,425 crore through disinvestments, the target it has set out in the Union Budget for 2014-15. Between April 1 and July 17, corporates have raised R19,562 crore, close to the R21,007 they picked up in the first four months of FY11. And in the pipeline are issues worth around R30,000 crore, from companies including Hindalco and JSW Energy. The government, for its part, is planning to kick off the disinvestments with sales of shares in ONGC and SAIL.
Sanjay Bajaj, MD and head, Equity Capital Markets, HSBC Securities & Capital Markets (India), believes there is good appetite for equity and that companies should be able to raise R55,000-60,000 crore this year. “The 10% reservation and discounts for retail investors in offers-for-sale should encourage them to participate,” Bajaj points out. Click here for graph
In its latest round of primary market reforms announced on June 19, the Securities and Exchange Board of India (Sebi) had made it easier for companies to list on the bourses by doubling the quota for anchor investors in public offerings to 60% from 30% within the qualified institutional investors (QIB) portion of public offerings. It had also allowed non-promoters, with a shareholding of more than 10%, to tap the OFS route.
Given how stretched corporate balance sheets are, the equity will come in handy allowing companies to pare their debt.
Research from Credit Suisse shows that with operating profits under pressure, the debt to ebitda (earnings before interest tax depreciation) levels for India Inc have risen in FY14; for the top 50 borrowers, that have an interest coverage of less than one, debt levels went up by 7% last year even as the ebidta dropped by 9% resulting in the debt/ebitda ratio deteriorating to 14.6X from 12.3X. While some companies having been selling non-core assets, these sales have not brought down their borrowings meaningfully.
For the government, the share sales will help it rein in the fiscal deficit, pegged at 4.1% for FY15, in a year that is likely to see subdued tax collections. With SEBI asking state-owned companies to increase their minimum float,or th enumber of shares that are available for non-promoters to 25%, approximately Rs 60,000 crore of equity, at current market prices, could hit the market.