Ashish Rukhaiyar
Mumbai, December 28, 2010
Sebi ensured a level-playing field between small and institutional investors.
Retail investors in stock markets had reasons to cheer this year, especially due to the investing opportunities available in the form of initial public offerings (IPOs) and follow-on public offers (FPOs). Also, the Securities and Exchange Board of India (Sebi) introduced several measures to ensure a level-playing field between small and institutional investors in the primary market.
For one, retail investors can put a larger amount in IPOs. In October, Sebi doubled the investment limit from Rs 1-2 lakh. The retail entities stand to gain, as it will increase the probability of getting allotted a higher number of shares at a time when the retail portion is subscribed many times, while attracting more investors.
In addition, retail investors (compared to institutions and high net-worth individuals) get more time to apply in IPOs. The IPO bidding window will be open for an extra day for them, after it is closed for other bidders. It implies that they can make investment decisions after factoring in the institutional demand.
And, the impact was immediately visible. MOIL, which was the first government-owned entity to hit the market after the new limits were notified, saw its retail portion subscribed more than 32 times.
Similarly, the retail segment of Shipping Corporation of India’s IPO was subscribed more than six times. More recently, government-owned Punjab & Sind Bank saw retail quota being subscribed a massive 44.45 times. To put things in perspective, the much-hyped IPO of Coal India, launched before the rise in limit, had seen the retail segment subscribed only 2.28 times.
“Most Sebi initiatives were taken with the retail investor in focus,” says Motilal Oswal, chairman and managing director, Motilal Oswal Financial Services. “These initiatives, while making the system more efficient, have provided investors many benefits. Investors gain from the money, which now remains blocked in the bank account till the time of allotment. The extra day (in IPO bidding) gives them ample time to make their investment decisions,” he adds.
Retail investors who prefer Asba (application supported by blocked amount) had yet another reason to smile. Their money will be blocked for a lesser time with the overall IPO time frame compressed to 12 days from the earlier 21 days. While Asba allows investors to earn bank interest on the blocked amount, the reduced time frame makes the money available quicker. And, with the Reserve Bank of India asking banks to pay a daily interest from April 1, it will increase the interest earnings for investors.
In an indirect move, the margin requirement for institutional investors while applying in an IPO was raised from 10-100 per cent. Retail investors will rejoice as the disparity between small and large investors have been done away with. A lower margin led to the creation of artificial demand, since the quantum of money to be paid up-front was only 10 per cent. “This would avoid inflated demand in public issues and provide a level-playing field to investors subscribing for securities,” according to Sebi.
Small investors who want to dabble in stocks, but don’t have an access to a computer or a broker throughout the day, can use mobile phones. Earlier, investors could only view their portfolio on cellphones, and not execute any trade.
On a different note, companies taking investors’ complaints lightly were taken to task by the market regulator. In December, more than 10 companies and their directors were barred from accessing the securities market for having failed to address the investors’ grievances. Retail investors will surely feel more empowered after this.
Friday, 31 December 2010
NRIs bet big on Indian stocks
Ashish Rukhaiyar
Mumbai, December 28, 2010
Net buyers of shares worth nearly Rs 94 crore in the current calendar year.
At a time when retail investors are shying away and institutional investors are in a state of flux, a niche set of investors is slowly increasing exposure to the domestic equity market. Non-resident Indians (NRIs) have been collectively putting in a sizeable amount of money in the secondary market, apart from investing in most initial public offers (IPOs).
According to data with stock exchanges, NRIs have been net buyers of shares worth nearly Rs 94 crore in the current calendar year. While this is small compared to other classes of investors, the data show that NRIs will end 2010 as net buyers for the first time since 2007.
Also, the yearly flows will be the highest since separate data for NRIs are being maintained. NRIs have been net buyers in most of 2010, except January and December.
Market players attribute this to the economy’s impressive growth rate and the returns generated by the stock market in recent years. “Most NRI investors are long-term in nature and prefer largecaps to known names,” says Pankaj Pandey, head (research), ICICI Direct.
“They like to hold on to their shares and do not generally indulge in aggressive churning. They prefer the ‘buy and hold’ strategy while investing in companies that have a good earnings outlook and, at the same time, have a good dividend paying history. While IPOs are also popular among NRIs, they prefer only the well-known names.”
In the primary market, NRIs have invested in most recent issues. Government-owned entities are one of their favourites, say market participants. Rough estimates put the NRI investment in the primary market at Rs 50 crore this year.
According to data collated by Karvy, NRIs have put in a sizeable number of bids in all issues, including Shipping Corporation of India, Power Grid Corporation, Electrosteel, Gujarat Pipavav and Ramky Infrastructure. In Power Grid and SCI, NRIs were allotted 15.6 million shares and 309,000 shares, respectively; in Electrosteel, 780,000 shares.
While the share of NRI bids is less than one per cent of the total portion reserved for retail and high net worth individuals, it is much higher compared to the IPOs of previous years.
“NRIs invest in large numbers in good quality IPOs and have increased their exposure this year,” says Uday Patil, director (investment banking), Keynote Corporate Services. “The returns provided by the Indian stock market are higher than most other markets of the world and this has attracted a lot of NRIs.”
Mumbai, December 28, 2010
Net buyers of shares worth nearly Rs 94 crore in the current calendar year.
At a time when retail investors are shying away and institutional investors are in a state of flux, a niche set of investors is slowly increasing exposure to the domestic equity market. Non-resident Indians (NRIs) have been collectively putting in a sizeable amount of money in the secondary market, apart from investing in most initial public offers (IPOs).
According to data with stock exchanges, NRIs have been net buyers of shares worth nearly Rs 94 crore in the current calendar year. While this is small compared to other classes of investors, the data show that NRIs will end 2010 as net buyers for the first time since 2007.
Also, the yearly flows will be the highest since separate data for NRIs are being maintained. NRIs have been net buyers in most of 2010, except January and December.
Market players attribute this to the economy’s impressive growth rate and the returns generated by the stock market in recent years. “Most NRI investors are long-term in nature and prefer largecaps to known names,” says Pankaj Pandey, head (research), ICICI Direct.
“They like to hold on to their shares and do not generally indulge in aggressive churning. They prefer the ‘buy and hold’ strategy while investing in companies that have a good earnings outlook and, at the same time, have a good dividend paying history. While IPOs are also popular among NRIs, they prefer only the well-known names.”
In the primary market, NRIs have invested in most recent issues. Government-owned entities are one of their favourites, say market participants. Rough estimates put the NRI investment in the primary market at Rs 50 crore this year.
According to data collated by Karvy, NRIs have put in a sizeable number of bids in all issues, including Shipping Corporation of India, Power Grid Corporation, Electrosteel, Gujarat Pipavav and Ramky Infrastructure. In Power Grid and SCI, NRIs were allotted 15.6 million shares and 309,000 shares, respectively; in Electrosteel, 780,000 shares.
While the share of NRI bids is less than one per cent of the total portion reserved for retail and high net worth individuals, it is much higher compared to the IPOs of previous years.
“NRIs invest in large numbers in good quality IPOs and have increased their exposure this year,” says Uday Patil, director (investment banking), Keynote Corporate Services. “The returns provided by the Indian stock market are higher than most other markets of the world and this has attracted a lot of NRIs.”
Sebi to link brokers to Asba, reduce IPO time
Ashish Rukhaiyar
Mumbai, December 15, 2010
Move likely to lead to an exponential rise in Asba use.
The Securities and Exchange Board of India (Sebi) is quickly moving towards its goal of compressing the initial public offering (IPO) period from 12 days to seven days.
The market regulator plans to integrate brokers with online Asba – Application Supported by Blocked Amount – a software provided by stock exchanges. Industry players say modifications are being made to ensure an exponential rise in the reach of Asba, vital to speeding up application and refund processes in IPOs.
According to people involved in the process, once the mechanism is in place, brokers will play a larger role in procuring Asba forms. At present, a broker only collects the Asba form from the investor and deposits it at the bank where the investor has his account.
Sebi introduced Asba in September 2008 to reduce the time taken for primary market issuances. Under Asba, an applicant can bid without his money moving out of the bank account; the money is debited only at the time of allotment of shares. This eliminates delays due to refunds.
“We are ready with the interface and are only waiting for confirmation from various intermediaries, including brokers, registrars and SCSBs (self-certified syndicate banks),” said a stock exchange official. “These entities will have to change their back-office systems to integrate with the new mechanism. There will be an interface between SCSBs and brokers that will help the latter key in the details directly in the online application mechanism,” he said.
The change
In other words, the exchanges would provide stock brokers access to the online Asba mechanism, wherein brokers would be able to key in details like the demat account number, the depository participant ID, the bank account number, the permanent account number and the bid details. Thereafter, banks that have access to the system will verify the account details and block the amount.
“Finally, brokers will become an integral part of Asba, which will increase its reach,” said a compliance officer of a domestic brokerage. “All brokers will push for Asba after the new mechanism is in place. Right now, we end up as courier agents, picking up the form from the investor and depositing it in the bank. Asba helps eliminate a lot of procedural delays in the (IPO application) system,” he said.
The market regulator has already clarified that brokers and sub-brokers will be entitled to a share in the Asba commission.
While initially the facility was available only for retail applicants, it was extended to institutional investors this April. In its attempt to widen the reach of Asba, Sebi asked exchanges to provide the forms on their websites.
Mumbai, December 15, 2010
Move likely to lead to an exponential rise in Asba use.
The Securities and Exchange Board of India (Sebi) is quickly moving towards its goal of compressing the initial public offering (IPO) period from 12 days to seven days.
The market regulator plans to integrate brokers with online Asba – Application Supported by Blocked Amount – a software provided by stock exchanges. Industry players say modifications are being made to ensure an exponential rise in the reach of Asba, vital to speeding up application and refund processes in IPOs.
According to people involved in the process, once the mechanism is in place, brokers will play a larger role in procuring Asba forms. At present, a broker only collects the Asba form from the investor and deposits it at the bank where the investor has his account.
Sebi introduced Asba in September 2008 to reduce the time taken for primary market issuances. Under Asba, an applicant can bid without his money moving out of the bank account; the money is debited only at the time of allotment of shares. This eliminates delays due to refunds.
“We are ready with the interface and are only waiting for confirmation from various intermediaries, including brokers, registrars and SCSBs (self-certified syndicate banks),” said a stock exchange official. “These entities will have to change their back-office systems to integrate with the new mechanism. There will be an interface between SCSBs and brokers that will help the latter key in the details directly in the online application mechanism,” he said.
The change
In other words, the exchanges would provide stock brokers access to the online Asba mechanism, wherein brokers would be able to key in details like the demat account number, the depository participant ID, the bank account number, the permanent account number and the bid details. Thereafter, banks that have access to the system will verify the account details and block the amount.
“Finally, brokers will become an integral part of Asba, which will increase its reach,” said a compliance officer of a domestic brokerage. “All brokers will push for Asba after the new mechanism is in place. Right now, we end up as courier agents, picking up the form from the investor and depositing it in the bank. Asba helps eliminate a lot of procedural delays in the (IPO application) system,” he said.
The market regulator has already clarified that brokers and sub-brokers will be entitled to a share in the Asba commission.
While initially the facility was available only for retail applicants, it was extended to institutional investors this April. In its attempt to widen the reach of Asba, Sebi asked exchanges to provide the forms on their websites.
After loan scam, LIC becomes cautious on equity investing
Ashish Rukhaiyar
Mumbai, December 14, 2010
Routes large orders through brokerages of public sector entities.
Life Insurance Corporation of India (LIC), the largest domestic financial institution active in the equity market, appears to be in cautious mode.
Institutional dealers empanelled with LIC say block deals have become rare. Most large transactions are being done through the brokerage arms of institutions partly owned by public sector entities.
The dealers say the insurance major is playing safe after the housing finance scam. On November 24, the Central Bureau of Investigation arrested eight people, including LIC Housing Finance CEO R R Nair and LIC Secretary (investments), Naresh K Chopra, for allegedly giving loans to private builders after taking bribes. There is also a buzz that the equity investments of LIC are under the scanner.
“After the bribe-for-loan scam, we haven’t really got any big trades from LIC,” said an institutional dealer with a domestic brokerage empanelled with LIC. “The information that we have got is that it is placing big orders mostly with the brokerage arms of government entities like IDBI (IDBI Capital) and SBI (SBI Capital Markets). It is relatively safer to trade through those entities, given the current environment,” he said.
According to a section of the dealers, LIC has also become selective in terms of stocks. Apart from the liquid counters, LIC is mostly looking at listed public sector companies, they say, adding that illiquid stocks are now on the “avoid” list.
“LIC was a favourite among promoters looking at placement of shares,” said another institutional dealer, on condition of anonymity. “All that has changed, with the insurance company becoming more selective.” Adding: “In the past, LIC has bought shares directly from many promoters, including that of a shipping company and a couple of Gujarat-based diversified business groups. There is, however, nothing unusual in LIC going slow on investments in the context of some recent news flow. Also, the overall activity in the market has gone down in the last couple of weeks.”
Recent months have seen the insurance major restructuring investment strategy through its empanelled brokers. It is believed that LIC has been trying to streamline operations by bringing down the number of brokers through which it trades in the equity market. The number of empanelled brokerages is estimated around 150.
In August, LIC wrote to its empanelled brokers, seeking data on research recommendations for the past 17 months. LIC wanted to review the recommendations and the relative return from these stocks compared to the benchmark, the Sensex. Some months prior to that, it slashed the brokerage fee from 15 basis points (bps) to 10 bps.
According to brokers, the average transaction size for LIC executed by most empanelled entities is Rs 30-40 lakh. For larger brokerages, the ticket size is around Rs 1 crore; the biggest gets trades worth a little over Rs 5 crore.
Mumbai, December 14, 2010
Routes large orders through brokerages of public sector entities.
Life Insurance Corporation of India (LIC), the largest domestic financial institution active in the equity market, appears to be in cautious mode.
Institutional dealers empanelled with LIC say block deals have become rare. Most large transactions are being done through the brokerage arms of institutions partly owned by public sector entities.
The dealers say the insurance major is playing safe after the housing finance scam. On November 24, the Central Bureau of Investigation arrested eight people, including LIC Housing Finance CEO R R Nair and LIC Secretary (investments), Naresh K Chopra, for allegedly giving loans to private builders after taking bribes. There is also a buzz that the equity investments of LIC are under the scanner.
“After the bribe-for-loan scam, we haven’t really got any big trades from LIC,” said an institutional dealer with a domestic brokerage empanelled with LIC. “The information that we have got is that it is placing big orders mostly with the brokerage arms of government entities like IDBI (IDBI Capital) and SBI (SBI Capital Markets). It is relatively safer to trade through those entities, given the current environment,” he said.
According to a section of the dealers, LIC has also become selective in terms of stocks. Apart from the liquid counters, LIC is mostly looking at listed public sector companies, they say, adding that illiquid stocks are now on the “avoid” list.
“LIC was a favourite among promoters looking at placement of shares,” said another institutional dealer, on condition of anonymity. “All that has changed, with the insurance company becoming more selective.” Adding: “In the past, LIC has bought shares directly from many promoters, including that of a shipping company and a couple of Gujarat-based diversified business groups. There is, however, nothing unusual in LIC going slow on investments in the context of some recent news flow. Also, the overall activity in the market has gone down in the last couple of weeks.”
Recent months have seen the insurance major restructuring investment strategy through its empanelled brokers. It is believed that LIC has been trying to streamline operations by bringing down the number of brokers through which it trades in the equity market. The number of empanelled brokerages is estimated around 150.
In August, LIC wrote to its empanelled brokers, seeking data on research recommendations for the past 17 months. LIC wanted to review the recommendations and the relative return from these stocks compared to the benchmark, the Sensex. Some months prior to that, it slashed the brokerage fee from 15 basis points (bps) to 10 bps.
According to brokers, the average transaction size for LIC executed by most empanelled entities is Rs 30-40 lakh. For larger brokerages, the ticket size is around Rs 1 crore; the biggest gets trades worth a little over Rs 5 crore.
Sebi vets UID use for stock market deals
Ashish Rukhaiyar
Mumbai, December 10, 2010
The Securities and Exchange Board of India (Sebi) has taken the first step towards evaluating the feasibility of using the unique identification (UID) number for all securities market transactions.
Nandan Nilekani, who is heading the UID project, met Sebi brass yesterday and explained how the number could be relevant in capital market transactions. The meeting was attended by stock exchange officials, investment bankers, brokers, fund managers, registrars and depository participants.
According to a person privy to the development, the importance of the meeting can be gauged from the fact that top Sebi officials, including Chairman C B Bhave, besides whole-time members and executive directors, were present. Recent reports suggest that the Ministry of Finance has asked Sebi to see if UID can be made mandatory for all securities market transactions.
“The session aimed at creating awareness about UID among various market participants,” said a person who attended the meeting, adding, “It is too early to comment on the implementation, as the process of issuing UIDs has only begun.”
UID was launched on September 29, when 10 residents of Tembhali village in Nandurbar, Maharashtra, were issued their numbers. According to the website of the Unique Identification Authority of India, over 600 million UIDs will be issued over five years.
“The meeting was a starting point for evaluating UID from the capital market perspective,” said another person who attended the proceedings. “We discussed how it could be applied (in stock market transactions). For instance, regulators wanted to know how it could capture change in the address of the investor, as a lot of corporate actions (dividends, AGM reports) require addresses of shareholders,” he said.
Others who attended the meeting included Sanjay Sharma of Deutsche Bank (also the vice-chairman of the Association of Merchant Bankers of India), Milind Barve of HDFC Mutual Fund and S Subramaniam of Enam. Top officials of the Bombay Stock Exchange, the National Stock Exchange and representatives of depositories and registrars were also present.
According to industry players, a move towards UID will mean a paradigm shift from the current use of the permanent account number (PAN) for all stock market transactions. “Multiple PANs in the name of a single person is a systemic risk, which will be eliminated by migrating to UID. One cannot have multiple UIDs, as the system will also capture fingerprints and iris details,” said the head of a domestic retail brokerage.
Mumbai, December 10, 2010
The Securities and Exchange Board of India (Sebi) has taken the first step towards evaluating the feasibility of using the unique identification (UID) number for all securities market transactions.
Nandan Nilekani, who is heading the UID project, met Sebi brass yesterday and explained how the number could be relevant in capital market transactions. The meeting was attended by stock exchange officials, investment bankers, brokers, fund managers, registrars and depository participants.
According to a person privy to the development, the importance of the meeting can be gauged from the fact that top Sebi officials, including Chairman C B Bhave, besides whole-time members and executive directors, were present. Recent reports suggest that the Ministry of Finance has asked Sebi to see if UID can be made mandatory for all securities market transactions.
“The session aimed at creating awareness about UID among various market participants,” said a person who attended the meeting, adding, “It is too early to comment on the implementation, as the process of issuing UIDs has only begun.”
UID was launched on September 29, when 10 residents of Tembhali village in Nandurbar, Maharashtra, were issued their numbers. According to the website of the Unique Identification Authority of India, over 600 million UIDs will be issued over five years.
“The meeting was a starting point for evaluating UID from the capital market perspective,” said another person who attended the proceedings. “We discussed how it could be applied (in stock market transactions). For instance, regulators wanted to know how it could capture change in the address of the investor, as a lot of corporate actions (dividends, AGM reports) require addresses of shareholders,” he said.
Others who attended the meeting included Sanjay Sharma of Deutsche Bank (also the vice-chairman of the Association of Merchant Bankers of India), Milind Barve of HDFC Mutual Fund and S Subramaniam of Enam. Top officials of the Bombay Stock Exchange, the National Stock Exchange and representatives of depositories and registrars were also present.
According to industry players, a move towards UID will mean a paradigm shift from the current use of the permanent account number (PAN) for all stock market transactions. “Multiple PANs in the name of a single person is a systemic risk, which will be eliminated by migrating to UID. One cannot have multiple UIDs, as the system will also capture fingerprints and iris details,” said the head of a domestic retail brokerage.
Twist in the tale: Bhave likely to get extension
Ashish Rukhaiyar
Mumbai, December 7, 2010
With just two months left for his tenure to end and three months after the government set up a search committee to find his successor, Securities and Exchange Board of India (Sebi) Chairman C B Bhave may end up getting an extension.
People familiar with the development said this might be necessary taking into account some important ongoing investigations against big companies and market operators. It is believed that an extension will ensure the continuity of the investigations.
The sources, however, added this “school of thought is still in its infancy” and no written communique had been sent either by the Prime Minister’s Office or the Ministry of Finance to the selection panel formed to choose the next chairman.
In what could be just a coincidence, a meeting of the search committee on Friday to interview the shortlisted candidates was cancelled at the last minute.
“One cannot say for sure if he will get an extension, but the idea has definitely been discussed,” said a senior industry official on condition of anonymity. “The factors that strengthen his case are the ongoing investigations and the transparency he has brought in the way some market intermediaries function,” he added.
The recent past has seen the market regulator take a tough stance against entities, including Sahara Group, Murli Industries, Ackruti City, Welspun Corporation and Brushman India. The Mumbai-based high networth individual, Sanjay Dangi, has also been barred on allegations of market manipulation. The regulator is also in the midst of a high-profile legal tussle with the MCX Stock Exchange, currently being fought in the Bombay High Court.
Another theory doing the rounds is that the government will be in no mood to attract fresh controversy by appointing a new chairman when it is already grappling with a number of allegations at the Centre.
“There is always a lobby favouring and opposing each candidate. One cannot predict until the file is signed,” says another veteran who has worked with three Sebi chiefs. “Bhave emerged from nowhere the last time and it cannot be ruled out again. The government can play safe by giving him an extension for two years. Mutual funds may be opposing him, but that is not a neutral view. Also, we keep hearing that candidates are not showing keen interest in the top job this time,” he explains.
While media reports earlier suggested that a total of seven candidates were in the fray for the post, only three-four managed to make it to the final list. While UTI Chairman and MD
U K Sinha is said to be one of the front-runners, others in the fray include Ministry of Company Affairs Secretary R Bandyopadhyay and Reserve Bank of India (RBI) Deputy Governor K C Chakrabarty. According to some media reports, State Bank of India Chairman O P Bhatt has opted out. The selection committee is headed by Cabinet Secretary K M Chandrasekhar and comprises Finance Secretary Ashok Chawla, Financial Services Secretary R Gopalan and Personnel Secretary Shantanu Consul.
Mumbai, December 7, 2010
With just two months left for his tenure to end and three months after the government set up a search committee to find his successor, Securities and Exchange Board of India (Sebi) Chairman C B Bhave may end up getting an extension.
People familiar with the development said this might be necessary taking into account some important ongoing investigations against big companies and market operators. It is believed that an extension will ensure the continuity of the investigations.
The sources, however, added this “school of thought is still in its infancy” and no written communique had been sent either by the Prime Minister’s Office or the Ministry of Finance to the selection panel formed to choose the next chairman.
In what could be just a coincidence, a meeting of the search committee on Friday to interview the shortlisted candidates was cancelled at the last minute.
“One cannot say for sure if he will get an extension, but the idea has definitely been discussed,” said a senior industry official on condition of anonymity. “The factors that strengthen his case are the ongoing investigations and the transparency he has brought in the way some market intermediaries function,” he added.
The recent past has seen the market regulator take a tough stance against entities, including Sahara Group, Murli Industries, Ackruti City, Welspun Corporation and Brushman India. The Mumbai-based high networth individual, Sanjay Dangi, has also been barred on allegations of market manipulation. The regulator is also in the midst of a high-profile legal tussle with the MCX Stock Exchange, currently being fought in the Bombay High Court.
Another theory doing the rounds is that the government will be in no mood to attract fresh controversy by appointing a new chairman when it is already grappling with a number of allegations at the Centre.
“There is always a lobby favouring and opposing each candidate. One cannot predict until the file is signed,” says another veteran who has worked with three Sebi chiefs. “Bhave emerged from nowhere the last time and it cannot be ruled out again. The government can play safe by giving him an extension for two years. Mutual funds may be opposing him, but that is not a neutral view. Also, we keep hearing that candidates are not showing keen interest in the top job this time,” he explains.
While media reports earlier suggested that a total of seven candidates were in the fray for the post, only three-four managed to make it to the final list. While UTI Chairman and MD
U K Sinha is said to be one of the front-runners, others in the fray include Ministry of Company Affairs Secretary R Bandyopadhyay and Reserve Bank of India (RBI) Deputy Governor K C Chakrabarty. According to some media reports, State Bank of India Chairman O P Bhatt has opted out. The selection committee is headed by Cabinet Secretary K M Chandrasekhar and comprises Finance Secretary Ashok Chawla, Financial Services Secretary R Gopalan and Personnel Secretary Shantanu Consul.
Half-a-dozen real estate IPOs face delay
Raghavendra Kamath & Ashish Rukhaiyar
Mumbai, November 27, 2010
The mega real estate loan scam could delay the initial public offers (IPOs) of over half-a-dozen real estate developers because of poor investor sentiment, said bankers and analysts tracking the sector.
“It will be very difficult for real estate entities to raise money through IPOs at this juncture,” said Gyan Mohan, executive vice-president and head, investment banking, IDBI Capital Markets.
According to Prime Database, which tracks primary capital markets, eight real estate companies have got the final approval from the market regulator to launch IPOs. These include Raheja Universal, Lodha Developers, Lavasa Corporation and Kumar Urban Development. Together, they were looking to raise Rs 9,500 crore.
“Though it has been said that this is not a systemic risk, investor sentiment has been impacted. The sector was anyway facing transparency issues,” said Mohan.
The IPOs are crucial for these developers to repay debt. For instance, New Delhi-based BPTP was planning to use a fourth of the IPO proceeds of Rs 1,500 crore to lower debt.
“I do not think any property developer will bring out a public issue in the current financial year. Those who try IPOs and QIPs (qualified institutional placements) will have to undergo a lot of scrutiny and due diligence in the coming days,” says Amit Goenka, national director, capital transactions, Knight Frank India.
Developers like Lodha agree. “The markets are still volatile and previous issues have not done very well. We may take a view in the new year,” said Abhisheck Lodha, managing director of Lodha Developers.
The benchmark BSE Sensex has fallen 2.3 per cent, or 448 points, since November 19.
To tap elsewhere
Due to delay in raising funds through selling equity and from public sector banks, the cost of borrowing for real estate companies will rise and developers may have to borrow more from private banks, non-banking finance companies and private equity (PE) firms, bankers say.
At present, property developers borrow at between 10.5 per cent and 14 per cent, depending on their credit profile. This may rise by 50-100 basis points.
“Conditions are quite adverse for the real estate sector. In debt, the cost of funds is based on the perceived risk. The riskier the assets, the higher is the price. Even RBI has increased the risk weight for real estate loans,” said a head of fixed-income capital markets at a foreign investment bank.
RBI increased the standard asset provisioning by commercial banks for teaser home loans from 0.4 per cent to two per cent, capped the loan-to-value ratio at 80 per cent and increased the risk weight on loans of more than Rs 75 lakh to above 125 per cent in the November 2 monetary policy.
Goenka says though private lenders will increase rates, private equity firms cannot increase their return expectations from developers, as they’ve already been asking for 25 per cent returns.
“PE firms will get more credible opportunities and put more money in the sector,” he adds.
However, some developers say funding from public banks will resume once the dust raised by the scam settles. “Banks cannot afford to not do business with property developers as they earn a good spread. Once things settle down, funding will continue as usual,” said the chief financial officer of a Mumbai-based listed company.
Mumbai, November 27, 2010
The mega real estate loan scam could delay the initial public offers (IPOs) of over half-a-dozen real estate developers because of poor investor sentiment, said bankers and analysts tracking the sector.
“It will be very difficult for real estate entities to raise money through IPOs at this juncture,” said Gyan Mohan, executive vice-president and head, investment banking, IDBI Capital Markets.
According to Prime Database, which tracks primary capital markets, eight real estate companies have got the final approval from the market regulator to launch IPOs. These include Raheja Universal, Lodha Developers, Lavasa Corporation and Kumar Urban Development. Together, they were looking to raise Rs 9,500 crore.
“Though it has been said that this is not a systemic risk, investor sentiment has been impacted. The sector was anyway facing transparency issues,” said Mohan.
The IPOs are crucial for these developers to repay debt. For instance, New Delhi-based BPTP was planning to use a fourth of the IPO proceeds of Rs 1,500 crore to lower debt.
“I do not think any property developer will bring out a public issue in the current financial year. Those who try IPOs and QIPs (qualified institutional placements) will have to undergo a lot of scrutiny and due diligence in the coming days,” says Amit Goenka, national director, capital transactions, Knight Frank India.
Developers like Lodha agree. “The markets are still volatile and previous issues have not done very well. We may take a view in the new year,” said Abhisheck Lodha, managing director of Lodha Developers.
The benchmark BSE Sensex has fallen 2.3 per cent, or 448 points, since November 19.
To tap elsewhere
Due to delay in raising funds through selling equity and from public sector banks, the cost of borrowing for real estate companies will rise and developers may have to borrow more from private banks, non-banking finance companies and private equity (PE) firms, bankers say.
At present, property developers borrow at between 10.5 per cent and 14 per cent, depending on their credit profile. This may rise by 50-100 basis points.
“Conditions are quite adverse for the real estate sector. In debt, the cost of funds is based on the perceived risk. The riskier the assets, the higher is the price. Even RBI has increased the risk weight for real estate loans,” said a head of fixed-income capital markets at a foreign investment bank.
RBI increased the standard asset provisioning by commercial banks for teaser home loans from 0.4 per cent to two per cent, capped the loan-to-value ratio at 80 per cent and increased the risk weight on loans of more than Rs 75 lakh to above 125 per cent in the November 2 monetary policy.
Goenka says though private lenders will increase rates, private equity firms cannot increase their return expectations from developers, as they’ve already been asking for 25 per cent returns.
“PE firms will get more credible opportunities and put more money in the sector,” he adds.
However, some developers say funding from public banks will resume once the dust raised by the scam settles. “Banks cannot afford to not do business with property developers as they earn a good spread. Once things settle down, funding will continue as usual,” said the chief financial officer of a Mumbai-based listed company.
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