In the last three months alone, billion dollar blocks have been oversubscribed. Big deals are happening; fundraisers and QIPs. Then there is also one section of the market that complains of this being a bear market. What exactly is happening on your side of the business?
The year 2020 as regards to fundraising and selldown is living up to its name of being a 20:20. There are large sixes being hit and we are also being hit very fast. So if you look at April to June quarter, we saw a record fundraising of Rs 1,05,000 crore through rights QIPs blocks and this must be the largest for a long time. To put this in perspective, the whole of last fiscal which is FY20, we did Rs 1,50,000 crore. Now to put it another perspective, most of these fundraisers and sell downs have happened in large blocks and you would have noticed IPOs have been rightfully absent for now.
They say that necessity is the mother of invention. I want to point out that such a large volume of fundraise in the largecaps that we have done in a Covid environment where I or my colleagues or clients have not stepped out or met each other. All of this fundraising has happened through technological and online innovation. We would have never thought about it a year back. So, just putting this in context. We expect this trend to broadly continue but in a more volatile market. That is our judgement.
In our young childhood a lot of us would have played snakes and ladder. So I do expect a snake and ladder market. We have to soft land the fundraising in that kind of an environment. Now what is really happening on the corporate side is that almost all corporate are in some form planning for a fundraiser and the elephant in the room in that context is leverage. So either it is a promoter leverage or it is a leverage in the balance sheet of a corporate and we are taking this matter very seriously. They have to deleverage through equity raising. If we also look at the banks and NBFCs, in addition to the deleverage story, they are also looking at raising confidence capital or survival capital and a very small population of strong corporates are also seeing this Covid-led opportunities to make acquisitions.
So all in all what we are sensing in the environment is that our massive plans for corporate raise in large proportion of India Inc is getting ready and my judgement is that not all of them may cross the line. Another new trend that we are seeing in this fundraise and also looking at the pipeline is that price issuances are back. In addition to the largest rights issue that was ever done by Reliance Industries, there are at least three or four large groups or companies which have announced rights issuances. You may recollect that in Jan 2020, Sebi had announced some guidelines for fast tracking rights issues. So those guidelines have helped and additional with subdued valuations.
At this juncture I will just say that in this environment of fundraising plans and discussions that are on, we must not under-emphasise the role of regulator, particularly Sebi. I think they have been listening to the industry association voices, they have not been lagging behind in looking at what changes need to be made to facilitate the fundraising environment. Large pharma, consumption and telecom are some of the sectors we are seeing investor receptiveness to look at either blocks or fundraising. When it comes to investors, it is a no-brainer. It is a buyers market. So there is a bit of price sensitivity and the local mutual funds are particularly becoming relevant. We see them participating in quite a wholesome manner in most of the action that has happened so far . So this is a quick synopsis of how we look at the fundraising environment.
What I want to understand is your conversations with some of the clients. What feedback are you getting? How are clients choosing between A versus B? What kind of companies are they tilting towards or shunning or ignoring?
If you look before this Covid environment, a little before the start of this calendar year, if you look at the past years, it has been dominated by the financial institution group (FIG) sector. So even in this sell down, we have seen the FIG sector having a major role but one changing trend that I am seeing is that we are noticing rights issuance and block trades happening in the non-financial sector. So that is the first thing we must keep at the back of our mind.
Second, there have been perceived concerns around the lending NBFCs and some of the banks. When we look at it from the investor’s lens, as I mentioned before, it is a buyers market. I think FIG is not the real hotspot just now. It is more selectivism in the FIG sector but it is more the larger groups; the stronger companies in infra, some of the companies which are parts of the larger groups like the Tatas, the Birlas, the Mahindras. So that is where we are seeing investors understanding and recognising that angle for recapitalisation. Some of the smaller well-run banks and NBFCs will of course get capital but it is not a granted thing that this will be dominated by FIG. The manufacturing and non-FIG sector will see a reasonably large proportion of fund raise and sell downs in the next 12 months.
How important are valuations in this year among all the themes which you are observing? What kind of feedback are you gathering from the promoter community regarding fundraising?
If I look at the time between April and May and a little bit of June, I think Nifty had lost at one stage about 18-20% of its value. But if you look at some of the companies particularly in the FIG sector and some outside the FIG sector, I think they had lost value significantly higher than this 18% to 20%. So we saw two groups of companies or players. Some of the corporates which had lost a little more than Nifty but not too much were clear that if they have to raise capital, QIP is efficient and they just went in and did the offering.
As you said, we saw a lot of practicality. They recognised that the stock price is the final practical barometer and raised money. But there have also been some cases where the valuation drop as compared to the fair value has been much higher than this 18% to 20% and there what stands out are the companies or groups looking at rights offerings. Therefore whether it is a rights issue or whether it is a sell down or a QIP, finally it does not matter. We see corporates and promoters are practical; so they’ll go wherever they can get the money from the investors to go ahead and finish their funding plan.
On valuations, it is a buyers’ market. But if I may just give you a short story of some of the sell downs we witnessed. So it starts with a little bit if you take growth rates and it starts with a little bit of a discount or if the demand for the block trade or the sell down builds well, the discount really tends to narrow and you come closer to the market price. So finally, it is a trade between buyer and seller and if the demand is good, there is reasonably good price optimization. That is what we have seen in some of the recent sell downs.
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June 19, 2020 at 12:00PM
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