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Fund mop up through ADR/GDR issues falls

Mop-up through initial public offerings (IPOs) more than doubled during the first quarter, writes BS Srinivasalu Reddy.

business Updated: Apr 05, 2007 23:38 IST
BS Srinivasalu Reddy
BS Srinivasalu Reddy

Blame it on the wobbly stock markets. Fund raising from American and global depository receipts has been reduced to almost a trickle, dragging the total resources raised by India Inc by 11 per cent to Rs 57,817 crore during the first quarter of 2007 against the same quarter in the previous fiscal.

However, mop-up through initial public offerings (IPOs) more than doubled during the first quarter.

Fund mop up through ADR/GDR issues fell to a meagre $51 million during the quarter, from $875 million in 2006, according to Bloomberg.

“Due to volatility in the local markets, some of the companies which have passed the requisite resolutions to do an ADR/GDR offering find that their stock prices are presently trading below the prescribed minimum floor price thereby resricting their ability to access the market at this juncture,” said Atul Mehra, Managing Director and Head-Global Capital Markets of JM Morgan Stanley.

The ADR/GDR offering by any company has to mandatorily clear the minimum floor price, which is prescribed by the Sebi (Securities and Exchange Board of India) formula.

Companies raised Rs 7,200 crore through 29 IPOs during the quarter posting a growth of 106 per cent over that of the same quarter last year. JM Morgan Stanley topped the IPO league tables for the quarter under review, followed by DSP Merrill Lynch, Enam and Kotak and ICICI Securities.

“On the IPO front, things are relatively better. However, volatile market conditions and constraints on liquidity will enable only good quality issues backed by good track-records of the promoters to access the capital markets for funds,” Mehra said.

In debt, companies tilted towards international bond issues, though syndicated loans are still popular with them in absolute terms. Funds mop-up through international bonds was up nearly five-fold to Rs 16,401 crore ($3,801 million), while syndicated loans, which include external commercial borrowings (ECBs) saw a 50 per cent fall at Rs 11,361 crore ($ 2,633 million).

The domestic bond issues were affected by the RBI’s monetary measures announced on three occasions during the last three months. Domestic bond mop-ups were down 36 per cent, compared to the same period last year. Standard Chartered Plc led the pack followed by ICICI Securities, UTI bank and Citigroup.

"Companies are expected to opt for international sourcing of funds in the next quarters, given prevalence of high interest rates in the domestic market. Even with the domestic loan (bank loans) market getting hotter, international funds will result in savings of at least one per cent," said Anil Ladha, Head- Debt Capital Market of ICICI Securities.

Short term lending rates through commercial borrowings have gone up by nearly 3 per cent over the last one year, while long-term lending rates for highly (‘AAA’) rated companies have seen a 2 per cent rise.

First Published: Apr 05, 2007 23:35 IST