Total funds raised by Indian companies during the first half of 2008 fell 25 per cent to Rs 157,422 crore, from Rs 2,08,450 crore raised during the same period last year. Foreign sources as a source of funding for Indian companies are drying up faster, with their share in total fund mop up falling to 32 per cent from about 62 per cent.
Funds raised through domestic sources – equity offerings like initial public offerings (IPOs), follow-on offerings (FPOs), rights issues, qualified institutional placements (QIPs), domestic/rupee denominated bonds and rupee syndicated loans – rose during the period by 34 per cent to Rs 1,06,400 crore, according to the latest Bloomberg data, compiled up to June 27, 2008.
The growth in domestic fund raising was spearheaded by rupee syndicated loans and rights issues by companies, which posted a rise of 124 per cent to Rs 29,100 crore and about 77 per cent rise to 18,600 crore respectively, during first half of 2008. However, IPOs failed to keep pace and reported a fall of about 12 per cent to 16,800 crore.
“The market will continue to remain challenging for companies to raise funds,” said S Subramanian, head (investment banking), Enam Financial Consultants. “But good quality issues, priced for the prevailing market conditions, will be in a position to succeed.”
“Due to total risk aversion of international investors, the cost of funds have gone up in the international markets. The current situation where Indian companies have to depend more on domestic funds may continue for another six months. The global credit crisis is far from over,” said AP Verma, MD & CEO of SBI Capital Markets.
The share of foreign sources of funds — depository receipts (ADR/GDR), foreign currency convertible debentures (FCCB), international bonds and syndicated loans – in the total funds raised fell about 61 per cent to Rs 51,022 crore ($11.9 billion, converted at the present rupee reference exchange rate of Rs 42.79 per dollar), from Rs 129,250 crore ($30.206 billion) in the previous year.
Only foreign currency syndicated loans somewhat survived with a fall of about 27 per cent in the wake of uncertainties stoked by sub-prime credit crisis in the US, while all other sources dried up by above 80 per cent. American and global depository receipts fell steeply from Rs 20,740 crore ($4.847 billion) in H1 2007 to Rs 903 crore ($211 million) in H1 2008.
Responding to a query, Subramanian cited unfavourable international credit markets as the reason for low sourcing of funds by Indian companies from foreign sources. “Not only India, international investors are wary of any international market now,” Subramanian added.