New Delhi:
Indian companies raised more than Rs 9 lakh crore through equity and debt routes in 2021 to satisfy their renewed appetite for business expansion in a vibrant stock market brimming with liquidity and aided by the recovery of macroeconomic indicators after the pandemic-ravaged first few months.
Unless the still-evolving Omicron situation is a bummer, next year it is expected to be much more robust in terms of fundraising activity and there appears to be no shortage of funds, experts said.
“The banks have been sitting on excess liquidity for quite some time and there should be plenty of demand for quality borrowers,” said Ricky Kripalani, principal sponsor of First Water Capital Fund.
Over the past year, the mobilization of funds through the debt markets has fallen sharply, while equity acquisitions have been robust and the bull run in the equity market with liquidity everywhere has resulted in record raises through initial public offerings (IPOs).
Despite the dip in fund mobilization through the debt route, it continued to contribute a lion’s share of overall fundraising activity in 2021.
Debt build-up has slowed due to prolonged economic disruptions during the first wave of the coronavirus pandemic, followed by a prolonged impact from the devastating second wave, said Sandeep Bhardwaj, CEO, Retail, IIFL Securities.
Of the cumulative Rs 9.01 lakh crore collected up to mid-December this year, funds totaling Rs 5.53 lakh crore were withdrawn from the debt market, Rs 2.1 lakh crore came from the stock market, Rs 30,840 crore through real estate investment trusts (REITs) ) and infrastructure investment trusts (InvITs) and Rs 1.06 lakh crore through the overseas route, according to data collected by the leading analytics database Prime Database.
In 2020, companies raised Rs 11 lakh crore including Rs 7.91 lakh crore through debt and Rs 2.12 lakh crore through equity.
Samir Sheth, Partner and Head – Deal Advisory Services, BDO India, explained that more funds were raised through the debt route in 2020 and said businesses were stalling due to a strict lockdown imposed since March 2020 and to the ill effects of control the same. , companies resorted to debt.
He went on to say that the stock market was down for most of the year and that the PE/VC markets were also not as active, leaving companies with few options other than debt financing in 2020.
Fresh capital was raised by companies to pay off debt, to fund capital expenditures on new projects, to support inorganic growth such as acquisitions, as well as for marketing and research and development purposes, said Satyen Shah, CEO and head, Investment Banking at Edelweiss Financial.
While companies wanted the liquidity to overcome the uncertainties associated with the pandemic in 2020, this is largely related to economic growth in 2021 and companies are mainly raising funds to expand, Mr Sheth said.
Of the total Rs 5.53 lakh crore raised through the Indian debt markets in 2021, Rs 5.38 lakh crore was from private placement and Rs 14,277 crore was through public issuance.
“Indian bond markets are typically tapped by financial sector companies that use funds for further lending (as the economic cycle accelerates) and ramp up capital buffers,” said Ajay Manglunia, managing director & head – Institutional Fixed Income, JM Financial.
The non-financial group primarily deploys the funds for general corporate expenses, capital expenditures and capital for inorganic growth opportunities, in addition to refinancing existing debt, he added.
In the equity market, funds came mainly from early equity sales as ample global liquidity, robust equity market and massive equity participation propelled the IPO market to new levels this year.
Within the equity segment, the IPO route helped companies to raise Rs 1.2 lakh crore, qualified institutional placement (QIP) route added Rs 41,894 crore, rights issue of shares to existing shareholders accounted for Rs 27,771 crore, while offer for sale ( OFS) through stock exchange mechanism contributed Rs 22,912 crore.
A total of 63 IPOs raised a record Rs 1.2 lakh crore, and Small and Medium Enterprises (SME) IPOs raised Rs 710 crore.
In comparison, Rs 26,613 crore was brought in through 14 IPOs on the motherboard while Rs 159 crore came in through the SMB segment in 2020.
Exuberant stock markets and spectacular stock gains from some companies were the main factors driving the IPO frenzy, said Piyush Nagda Head-Investment Product at Prabhudas Lilladher.
Bhardwaj of IIFL Securities believes the bullish trajectory will continue for the IPO market in 2022 as well and a new record level of funds raised could be reached in the new year, while LIC’s mega initial share sale is also on the horizon.
Excluding public issuances, share raising via QIPs fell to Rs 41,894 crore in 2021 from Rs 84,509 crore last year, mainly due to the availability of cheaper debt and the expectation of high valuations due to rising markets making promoters hesitant to dilute.
Another reason for the decline in fund-raising by QIPs could be the expectation of further gains in equity markets as markets rose steadily from the beginning of the year to mid-November.
The number of QIPs in 2021 was higher than last year, but the quantum is relatively lower.
In the future, Mr. Kriplani of the First Water Capital Fund which could attract fund raising through QIPs as the capital investment cycle is now reviving and valuations are high.
Funds mobilized through the rights issue mode also fell to Rs 27,771 crore in 2021 from Rs 64,984 crore last year. Bharati Airtel contributed a lot this year with the rights issue of Rs 21,000 crore.
In the year 2020, Reliance’s largest ever rights issue amounted to Rs 53,000 crore, making this year look pale in comparison.
However, the funds collected through the OFS route – used to dilute promoters’ interests – rose to Rs 22,912 crore this year, from Rs 20,901 crore in 2020.
In addition, companies took the infrastructure investment trusts (InvITs) and real estate investment trusts (REITs) mode to raise funds and raised Rs 32,125 crore in the past year, down from Rs 38,109 crore mobilized in 2020.
Aside from the domestic route, funds totaling Rs 1.06 lakh crore have been raised through overseas bond markets and convertible foreign currency bonds (FCCBs), much lower than nearly Rs 68,000 crore collected last year.
Experts believe a robust financing scenario for Indian companies will continue into 2022 for both the equity and debt routes.
“Given the strong liquidity, the Covid situation under control, the positive outlook for corporate earnings and the overall growth story in India, we expect investors to continue looking at financing Indian companies,” said Mr Shah of Edelweiss Financial services.
Barring major economic impacts from Omicron, Mr Sheth of BDO India, overall economic growth and significant financing scenario for Indian companies will continue into 2022.
On debt, IIFL Securities’ Mr Bhardwaj believes that significant debt fundraising is likely to take place in the coming quarters as the economy is back on track and private investment plans pick up.