To market, mostly to repay debt

With initial public offerings (IPOs) flying off the shelves, more and more companies are hitting this cheap route to reduce debt.

At least five of the recently listed companies have announced plans to use their primary market mop-up to repay debt.
These include Godrej Properties, DB Corp, JSW Energy, Cox & Kings and Den Networks.

In JSW Energy’s case, loans it plans to repay using the Rs 3,818.72 crore collected through IPO date back to 2006 and 2007, from a consortium led by IDBI and ICICI Bank.

There are others too: Infinite Computer Solutions and Jubilant Foodworks, which wrapped up successful issues, and New Delhi-based realtor Emaar MGF, have similar repayment plans.
“This is part of the financial planning exercise of a company. When funds are expensive, companies reduce debt and when they come cheap, there is more debt collected. If a company is able to get cheaper funds (through IPOs), then why not,” asks Sanjiv Saraff, vice president - investment banking at ICICI Securities.

Why not a qualified institutional placement which is quicker, more efficient?

Manish Bandi, vice-president at India Infoline, says when the market is stable and there is more public participation, IPOs are preferred.

“IPOs also give the company an opportunity to raise funds from a larger number of investors than QIPs. Investors also prefer fresh listings as another exit opportunity presents itself after a period of time,” Bandi said.

But the learnings have come the hard way for companies.
The meltdown has been a stringent teacher.

“In 2007, we saw overleveraging. After the financial crises, companies have learnt  to keep a check on debt. They are now cashing on the opportunity of better market conditions,” said Bandi.

Encouraged, others are lining up, too.

Gujarat Pipavav, which filed for an issue this month, wants to clear debt worth Rs 300 crore. Realtor Neptune Developers says it will also be using proceeds to repay debt — only, in this case, it’s the debt of a subsidiary.

“It is a not concern,” mollifies Saraff.

So when do the floats for capital expenditure start?

It’s not far away, say experts.

“The second stage will be upon us soon enough, where fresh equity is used to propel growth and capex,” said Tarun Kataria, chief executive of global banking and markets at HSBC India.
Another analyst with a domestic brokerage concurs with the logic, but says traction on that count will depend a lot on how the demand story in the economy shapes up.