The Hindu Business Line : 2007 likely to see bumper harvest of IPOs

The year 2007 may turn out to be a bumper year in terms of number of public issues, courtesy a buoyant secondary market and handsome post-listing gains on almost all IPOs, according to Mr Prithvi Haldea, Managing Director of Prime Database.

"It is estimated that the year may witness about 150 public issues raising about Rs 45,000 crore. This will be the highest-ever amount in a year - the previous highest was Rs 30,511 crore in 2004."

The 2006 calendar, despite an extremely bullish secondary market and a high-return primary market, ended with a mobilisation of only Rs 24,432 crore, which nevertheless was the second highest-ever.

Even if only the documents filed with the SEBI as of today were to materialise, 2007 would see a mobilisation of Rs 28,376 crore, according to Prime Database.

Unlike in the past, the key characteristics of the prospective issuers are one or a combination of well-established companies or promoters, divestment by venture capitalists and follow-on offerings, said Mr Haldea, all of which augur well for the investors, the capital market and the economy.

Currently, there appears to be no market for greenfield projects or for new promoters.

"Courtesy the new market structure, SEBI entry norms and compulsory participation (and hence validation) by QIBs, fly-by-night operators are a thing of the past. The myth of the shallowness of the Indian market has been dispelled; and most issues have received healthy oversubscriptions across all investor segments," Mr Haldea said.

While 2007 will witness some super mega issues, mid-sized issues will dominate in numbers.

As of today, as many as 93 issues have been filed with the SEBI, collectively planning to raise Rs 28,376 crore, working out to an average of Rs 305 crore per issue. Of these, as many as 66 are of Rs 100 crore or below.

There would not be many follow-on public offerings (FPOs) by listed companies, though the single mega Rs 12,000-crore SBI FPO will increase the share.

The share of FPOs in total mobilisation, which was 56 per cent in 2005, fell to 20 per cent in 2006.

Importantly, there would be hardly any small issues, according to Mr Haldea. This is not only because the market will not support such issues, but also because there are no investment bankers willing to take on small assignments.

The entry barriers on the BSE and the NSE are very high and the regional exchanges are closed.

There was no issue of less than Rs 10 crore in 2006, while 2005 had seen only two such issues.

Interestingly, the rally would not be concentrated to one or two industry sectors but would be across the board.

The year is at least partly dependent on PSU issues. According to Prime Database, the PSU pipeline is currently led by power sector companies such as Power Finance Corporation, Power Grid Corporation, Rural Electrification Corporation, NHPC and North Eastern Electric Power Corporation.

If the Left softens its stand during the year, many divestment/fresh issues could see the light of the day.

"Offerings from PSUs will also strengthen our narrow secondary market, which is marred by excessive speculation and volatility. This is as good a time as ever for the Government to enlarge the investor base and the capital market, and to raise money that it so desperately needs. Moreover, the public offering route is the most transparent, non-controversial route," said Mr Haldea.

According to him, the fate of the primary market is now closely linked with that of the secondary market. The current conditions offer an excellent opportunity to channelise household savings into the economy.

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