NTPC, Oil India issues may do well: Kotak Invst Banking

After National Mineral Development Corporation’s divestment process met positive response, the Government is now all geared up to divest NTPC in an attempt to expedite meeting the target for FY12.

On the backdrop of divestment secretary, DK Mittal giving details of the NTPC issue (expected in second half of January) and Oil India issue (expected in the first half of January), V Jayasankar of Kotak Investment Banking says he expects both the issues to be successful.

"I think Oil India is perceived by investors to be a quality asset and so is NTPC. The issue with NTPC the last time versus this time is that there is a lot more pessimism around the sector prospects as compared to the loss to the last time. Therefore, in a way, you can argue that NTPC has touched the bottom," he says.

Jayasankar also says that he expects the private sector to contribute to the first quarter of 2013 in the form of qualified institutional placement (QIP), institutional placement programme (IPP) and offer for sale (OFS).

Below is the edited transcript of Jayasankar's interview to CNBC-TV18. 

Q: Do you think it will mostly be the government that will populate the fresh offering calendar in January to March? Or do you see significant private appetite for capital in the first quarter?

A: I think even the private sector would contribute to the first quarter. It will be more in the form of qualified institutional placement (QIP), institutional placement programme (IPP) and offer for sale (OFS) because they are shorter turnaround products. Therefore, you will see a good level of activity from the government. The Disinvestment Secretary has already talked about USD 3-4 billion before March and add to that probably another billion-and-a-half in the private sector.

So, that is what one should expect in the Q1. The initial public offering (IPO) activity in the Q1 will be a little slow despite a very strong momentum in December. We have seen three issuances but that we see translating to a significant more IPO activity from June, because they are longer turnaround products.

Q: How easy or tough do you think is it going to be to get through issues like Oil India and NTPC though? The NTPC experience is not very far back and retail interest over there was very poor. The investment bankers were pushing till late night to get that issue done.

A: I think Oil India is perceived by investors to be a quality asset and so is NTPC. The issue with NTPC the last time versus this time is that there is lot more pessimism around the sector prospects as compared to the loss to the last time. Therefore, in a way, you can argue that NTPC has touched the bottom. In this context, DK Mittal, the divestment secretary has also said that the government will price it, taking into consideration the intrinsic value as perceived by investors as well as the government. So this time around, despite the experience of last time, NTPC, Oil India should do well.

Q: What’s gone through successfully, is the whole slew of QIPs and OFS offerings that companies have done. Can you give us a sense of how big that end of the market is over the next couple of months? Is this sector specific or there is any trend you see in terms of which kind of companies are going with more OFS?

A: Last year QIPs were a lot more prominent from the financial sector as well as the consumer sector, for example, Mahindra Finance, IndusInd and Godrej Industries from the consumer sector. So, I see these two sectors still being prominent going forward in the next calendar year, but given that the market sentiments have improved, the global liquidity position also has by and large improved as compared to what it was in the first half of the current calendar year.

There will be issuances on the QIP front from sectors outside of consumer and the financial space. Over the course of the coming calendar year 2013, it’s quite possible to see somewhere about USD 15-16 billion of overall funds broken into probably about USD 5-6 billion from just the government sector and about USD 6-7 billion from the private sector.

You will see the IPO activity a lot more prominent June onwards because the Securities and Exchange Board of India (SEBI) filings momentum will pickup and this will lead to a great level of IPO activity from June to December. There will also be QIP activity running right through the year, because it’s a shorter term, a one-two month turnaround product. The same is for IPPs and OFS. A lot of companies will have to comply with the minimum 25 percent public float. So, you will see in the first six months a lot of companies trying to come to the market and comply with the minimum public float. These are the various activities you will see and broadly a lot more level of activity and a greater size of money that can be raised potentially in 2013.

Q: The Disinvestment Secretary was talking about pricing only being one plank and looking at other innovative ways to push the product or push the share sales. Can you think of any other methods which the government might adopt?

A: Some of these are still at discussion stage, therefore I cannot comment. However, I can say that the companies that he has announced, Oil India and NTPC are well thought through and discussed by and large at the cabinet level as well as at the secretary level.

I can see a clear intent from the government to get the deals done and then we will have the next fiscal year target. We do not know what the Parliament will approve, but whatever is approved, I see that activity being spread throughout the year as compared to being back ended as we saw in the current year.