See private sector raising $1bn via OFS/IPP: Deutsche Bank

Not only is the Indian stock market is buzzing, but there is lot of activity in the primary market too, especially with the Just Dial IPO, DLF institutional placement programme(IPP) and with some more in the pipeline.

Commenting on the primary market activity, Sanjay Sharma, MD & Head of Equity Capital Markets–India at Deutsche Bank said that he sees private sector companies raising around USD 1 billion via offer for sale (OFS) or IPP. He expects around USD 500 million from multinational companies (MNCs), with most of them being an OFS and few delistings. As fas as the private sector goes, the next few offerings over three-four weeks would be linked with 25 percent float and for the public sector, lack of liquidity continues to be a concern, he added. "With the government target for divestment being around Rs 40,000 crore, we are likely to see large ticket divestment happening in the first half of FY14. Mainly, because in the second half the focus would shift to politics,elections etc," he elaborated. Also read: Govt to kick-start divestment in June; NHPC, IOC in line Below is the verbatim transcript of his interview on CNBC-TV18 Q: Take us through the response you saw on DLF because it was a large sized IIP from real estate after quite a while? A: Yes, it is very encouraging. The overall book was almost two times covered and the pricing which was announced last evening, was at Rs 230, which is more or less at the top end of the range. It was a combination of large existing shareholders coming in as well as some of the new investors coming in. Therefore, overall it is very positive. Q: Which are the next large issues that will be hitting the market from the private stable in terms of these kind of institutional offerings? A: In terms of whatever is expected over the next three-four weeks is primarily driven by 25 percent minimum public holding. Although it is difficult to tell if it could be through placement programme (IPP) or offer for sale (OFS). Wherever the companies need money it would be IPP, otherwise OFS is much easier and flexible process to work on. Therefore, from private sector perspective without giving details of names, I would expect about a billion dollar worth funds being raised either through IPP or OFS. On the multinational company (MNC) side as well, we are seeing lot of companies trying to comply it before the deadline, broadly putting about USD 500 million there. Most of them are OFS; very few delisting being considered. On the Public sector side there are very few companies left, but that is a difficult leg. Because of the lack of liquidity most of these companies are close to 98-99 percent held by government. So there is hardly any public holding and that would be a challenge. So, leaving that on private sector and MNC sector most of the companies would comply before the deadline. Q: Till recently though, when money raising was happening there was often a disconnect between what the promoters saw as fair value or a fair price for their stock versus what was offered to them. Are you beginning to sense a change in that - DLF is interesting in that sense that they actually got a premium over the price they set? A: It is a question of demand-supply, and in most of the cases one is seeing listed stocks being traded at a particular level. The other advantage is that in IPP and OFS, you do not have to worry about artificial Sebi minimum price, and therefore the market price also works in that tandem. It is not artificially worked around because there is a qualified institutional placement (QIP) coming at a particular minimum price. Q: What do you hear from the government’s stable because there has been talk about NHPC next followed by big tickets like Indian Oil Corporation and Coal India? Do you expect the government to come in with a flurry of offerings in June-July period? A: Yes. The government has put out a target of Rs 40,000 crore. The names which you talked about are large ticket and could help in meeting the target quickly. According to me, while the financial year from April to March is considered, most of these companies would come in, in the first half, given that second half would be difficult primarily because of the elections coming in.