Poor response to public issues in 2000-01

By Our Corporate Reporter

CHENNAI, MAY 2. Fiscal 2000-01 has ended with a lower mobilisation of Rs. 6,623 crores through public issues of both debt and equity compared to the preceding year which had closed at Rs. 7,673 crores, according to Mr. Prithvi Haldea of Prime, the country's premier data base on primary market.

Significantly, according to Prime, debt continued to dominate the issuances with Rs. 4,144 crores or 63 per cent being mobilised by debt issues. Quite like the previous years, there was no debt mobilisation by the corporate sector and this year's debt raising too was restricted to the two financial institutions. While ICICI at Rs. 2,783 crores raised more money than its last year's collection of Rs. 2,575 crores, IDBI raised lesser money at Rs. 1,161 crores than its last year's figure of Rs. 2,073 crores.

Courtesy the bad experiences of the mid-Nineties, further compounded by the misadventure' with several recent IPOs, investors have continued to show marked preference for safety. From zero per cent in 1994-95, the share of debt in total public issue mobilisation has been rising consistently: from 25 per cent in 1995-96, 60 per cent in 1996-97 and 63 per cent in 1997-98 to a peak of 94 per cent in 1998-99, and still continuing to be high at 61 per cent in 1999-2000 and 63 per cent in 2000-01.

On the other hand, the amount raised through equity issues during the year fell to Rs.2479 crores. While this represented a decline of nearly 17 per cent from Rs. 2,975 crores raised in 1999-2000, it was still significantly higher than Rs. 504 crores which was raised in 1998-99, incidentally the worst year for the public equity issue market. Of course, the mobilisation was nowhere near the Rs. 13,312 crores raised in 1994-95. It may, however, be pointed out that 1999-2000 had seen the IPO market finally emerging out of its slumber and but for the Nasdaq crash in April 2000, the mobilisation in 2000-01 would have seen an upward climb.

Quite in line with the secondary market, the equity issuances, as per Prime, continued to be dominated by the ICE sector, with the year this time belonging more to the telecom and media sector than the IT sector. A high Rs. 879 crores or 35 per cent was accounted for by the telecom sector through 4 issues (compared to one issue for Rs.75 crores in the previous year). The IT sector garnered Rs.627 crores or 25 per cent despite a high 83 issues (a fall from Rs. 1,492 crores raised last year by only 36 companies). In addition, Rs. 456 crores or 18 per cent was raised by 14 media companies (compared to Rs.125 crores raised by two companies last year). The ICE sector thus accounted for over 79 per cent of the total equity mobilisation.

The manufacturing sector, as per Prime, continued with its pathetic performance. It witnessed a mobilisation of only Rs. 42 crores by seven companies, much lesser than Rs.732 crores raised by eight companies last year. Additionally, Rs.361 crores was raised by three banks and Rs.113 crores by four NBFCs.

By numbers, the year witnessed 124 issues, up a significant 91 per cent from 65 issues in 1999-2000, though nowhere near the high of 1,428 issues in 1995-96. It might be noted that despite an almost 100 per cent rise in the number of issues, the amount mobilised was still less than the preceding year.

Significantly, 13 issues were made during the year through the book-building route compared to five in the previous year. While six of these issues were from the media sector, five came from the telecom sector. In all, the book-built issues accounted for 58 per cent of the total equity raised during the year.

Unlike the previous year when all ICE sector issues were hugely oversubscribed, the response to most issues this year, according to Prime, was poor to moderate. In fact, two issues (IT&T and Hughes Telecom) devolved on the underwriters and as many as five issues (Ador Powertron, Arraycom, Geekay, Globsyn and Oceana Software) had to refund application money for failing to mobilise the minimum subscription. In addition, the book-building issues of SIP Technologies and Creative Eye had to be withdrawn after launch due to extremely poor response, though Creative Eye subsequently relaunched its issue at a much lower price.

Prime had repeatedly cautioned against the growing belief during 1999 and early 2000 that the IPO market had revived. Prime had considered this more a result of a sectoral frenzy and had stated that the number of issuance was still too small to herald it as a revival. Such beliefs, Prime had felt, would take away the attention of the regulators and the market participants from several ills affecting the primary market, many of which in fact had begun to resurface. No wonder, the IPO market collapsed in mid-2000, much before the downfall of the secondary market in March 2001 which has now made the situation for IPOs only worse.

There is probably a silver lining in the crash, according to Mr. Haldea. It has put brakes on a large number of par IPOs from untested companies on one hand and would hopefully bring more sanity in pricing by the existing companies on the other. There are over 500 IPOs presently waiting in the wings, of which over 75 are holding SEBI approval.

A good way to kickstart the primary market, according to Mr. Haldea, surely would be for the Government to seriously rethink its divestment strategy, by offering shares of blue chip PSEs to retail investors at attractive prices.

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