2007 could be yet another year of the IPO

150 companies may mobilise Rs 45,000 crore this year; power, real estate, infrastructure and banking firms to be the big public offers

With the secondary market remaining buoyant, 2007 may turn out to be a bumper year for public issues. In the pipeline are issues waiting to raise Rs 175,000 crore. However, all of this cannot and will not mature within 2007 and 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 high being Rs 30,511 crore in 2004. Calendar 2006, 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, according to Prime Database.

Significantly, even if only the documents filed with Sebi as of today were to materialise, these would, according to Prime, result in a mobilisation of Rs 28,376 crore (higher than calendar 2006), with the complete year still ahead.

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Unlike in the past, the key characteristics of prospective issuers, according to Prithvi Haldea of Prime, are one or combination of well-established companies or promoters, divestment by venture capitalists and follow-on offerings, all auguring well for investors, the capital market and the economy.

“Presently, there appears 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; most issues have received healthy over-subscriptions across all investor segments,” he said.

According to Haldea, 2007 would witness some super mega issues, though by number, it would be dominated by mid-sized ones. As of today, 93 issues have been filed with Sebi. Of these, 66 hope to raise Rs 100 crore or less. There would not be many follow on public offerings (FPOs) by listed companies, though SBI’s single mega issue of Rs 12,000 crore will increase FPO share, which was 56 per cent in 2005 and had fallen to 20 per cent in 2006.

There would be hardly any small issues. “This is not only because the market will not support such issues but because there are no investment bankers willing to take on small assignments, the entry barriers at BSE and 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, Haldea said.

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According to Prime, the PSU pipeline is presently led by the power sector companies including 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 or fresh issues could see light of the day. These may include BEML, Gujarat Mineral Development Corp., Gujarat State Energy Generation, Gujarat State Petroleum, NMDC, Neyveli Lignite and Shipping Corp of India.

There are several banks in the queue as well. These include public sector banks like Indian Bank (already filed offer document with Sebi), Bank of India, Canara Bank, Central Bank of India, Corporation Bank, SBI and some of its subsidiaries, UCO Bank, United Bank of India and Vijaya Bank. Several private sector banks are also in the fray.

According to Haldea, a major sector would be real estate and infrastructure. Overall, 2007 looks like yet another year of the IPO.