Infrastructure companies remain focused on entering the primary market to mop up funds for their projects despite the fact that many ongoing public issues are struggling to earn the confidence of investors in the aftermath of the global meltdown.
Bolstered by the success of its expressway project, Delhi-based infrastructure company DS Constructions is now planning to raise funds in the range of Rs 1,200 crore and Rs 1,500 crore through the issue of fresh equity shares resulting in a dilution of around 20 per cent equity stake. Besides the expressway, the company is also implementing various large road projects and four hydro-power projects in eastern India with a combined capacity of over 4,200 mega watt.
Earlier this week, Reliance Communications' subsidiary Reliance Infratel filed a Draft Red Herring Prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) with the intent to raise around Rs 6,000 crore. JP Power Venture had also filed the DRHP with the regulator to mop up around Rs 4,000 crore.
According to highly placed sources, DS Constructions has conducted the first round of parleys to woo investment bankers on Tuesday and is expected to take a final decision shortly. “Though nothing as finalised yet there are indications that the company is expected to enter the capital markets in the first quarter of the next fiscal,” a leading investment banker said.
When contacted, a company spokesman, however, said: "We are looking at various option and nothing has been finalised as of now. As a corporation we keep on meeting investment bankers to tell them about our vision.”Sources in banking circles said that the company is planning to enter the market at a value of over Rs 5,000 crore, adding that the size of the IPO would depend on the prevaling market situation.
DS Constructions has reported revenues of around Rs 612 crore and a net profit of a little less than Rs 100 crore.
Another investment banking source said that the success of the expressway project would improve its profitability significantly. “As per conservative estimates, the company will have annual toll collections of around Rs 250 crore. This, in a way, would reduce the debt pay back period to less than four years as against the original estimates of around nine years," he said.
Since many projects were underway in the infrastructure sectors, these companies would have to raise resources to achieve financial closures, said bankers. “With restrictions on borrowings from international markets and the high cost of funds in India, these companies are left with little option but to enter the capital market.
In case the primary market remain sluggish, many of these infrastructure companies, particularly the new ones where the cash flows have not yet begun, are expected to face a tough time in completing these projects,” they said.