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Well-priced PSU issues are hot in IPO market
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Saturday, February 23, 2008 |
The response to the Rural Electrification Corporation (REC) issue subscription signifies the fact that irrespective of general market conditions, well-priced issues of companies with strong fundamentals are accepted by investors.
Even more significant, investors feel a lot safer to invest in issues where government is the promoter.
And to the delight of investors, about 75 closely-held government companies and banks have evinced interest in diluting their equity and going public. If all goes well, the year 2008 would see a host of PSU public issues hitting the Indian capital market.
"Though strategic decision-making powers still rest with the government, we are seeing more decentralisation happening with regard to PSUs. Many a time, decisions pertaining to capital infusion and expansion are taken by managers themselves," said Crisil's senior economist Sunil Sinha. "
As far as stake dilution goes, it is still a political decision; but there are many sectors where government wants to either exit or augur in more private participation. Companies in such sectors should get easy approvals for unlocking value," Mr Sinha added.
According to a recent Edelweiss Capital report on IPOs, several PSUs are expected to come up with fresh issue of shares during the year. Much awaited-public issues of the year include NTPC (which has plans to raise Rs 6,000 crore), HPCL (Rs 5,000 crore), Coal India (Rs 3,000 crore) and Gujarat State Petroleum Corporation (Rs 4,000 crore). The prospective merger of SBI and its listed subsidiaries, slated to happen sometime in 2008, will also be a closely-followed affair.
On the follow-on public offering (FPO) front, the Rs 12,000-crore issue of SBI would also be an opportunity for existing investors to invest in the banking behemoth. Indian Bank has filed an offer document with Sebi for raising Rs 800 crore.
However, according to experts, one of the key challenges for the PSUs would be pricing and the timing of the issue since the market is volatile. Taking cues from the recent 'IPO bashing' on the D-Street, investors do not like over-priced issues in bearish and indecisive market conditions. "The present times may not be great for public issues; but if you look at IPOs are still happening. Fairly priced issues are still well-received by investors. So once secondary market stabilises, there will be several issues both PSUs and others hitting the market," said Kotak Investment Banking COO, S Ramesh. Mr Ramesh feels investors like PSU issues as they find a lot of hidden value in government-controlled companies.
According to Edelweiss Capital research head Shriram Iyer, PSU issues are liked by investors because they have a great track record and an established business. "No matter what, well-structured PSU issues operating in growth sectors get its due in the market. There are a few issues that are lined up; subject to government approval and market condition, they will hit capital markets in the months to come," Mr Iyer added.
However, there is always lethargy attached to the working of listed PSUs vis-a-vis private firms. "The prime motive of private sector companies is enhancement of shareholder value. PSUs, on the other hand, has to meet several social objectives. Many a time, social objectives of a PSU conflict with the profit motive," said an equity research head of a foreign brokerage.
Source : TET |
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posted by www.OnlineEquityCalls.com @ 10:49 PM  |
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