India: Fundraising via IPOs at 10-year high in 2017

Photo: Hemant Mishra/Mint

We simply won’t stop gushing about how fantastic 2017 has been as far as initial public offerings (IPOs) are concerned.

Take a look at the chart alongside. Money raised through IPOs till November this year is the highest in at least the last 10 years. This, of course, reflects the general buoyant mood in the Indian stock markets.

Companies aren’t feeling confident enough about demand picking up rapidly enough to warrant adding capacity.

But a close look at the break-up of the aggregate IPOs in 2017 shows the scenario isn’t all that encouraging. That’s because fresh capital is only 17% of the total money raised whereas the remaining 83% is contributed through the offer for sale (OFS) mechanism.

In an OFS, existing shareholders (including promoters, private equity investors, venture capital funds) of a company are looking to sell their stake and this money does not make it to the firm’s kitty and by that logic, companies cannot use these funds. On the other hand, money raised through fresh capital is typically used for investing in new projects or for capital expansion. Clearly, the trends for this year show that is not happening. As you can see in the chart, contribution from fresh capital in the overall money raised through IPOs is the lowest since 2007.

In fact, according to an analysis by Prime Database on the use of proceeds by companies that raised money in 2017, 21% of the fresh issue funds were meant to be used for prepayment or repayment of debt and 9% for issue- related expenses. This further lowers the contribution of fresh funds to be spent on other purposes such as strategic investments/acquisitions; capital expenditure—current and future requirements; working capital requirements; general corporate purposes; and so on.

What does this tell us? In a nutshell: companies aren’t feeling confident enough about demand picking up rapidly enough to warrant adding capacity.

Also Read:

India Digest: Policy Bazaar, Bharat Serum eye IPOs next year

India IPO activity likely to remain high next year: JPMorgan’s Kulkarni

This article was first published on Livemint.com

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.