Indian IPOs: back in vogue, for now

By:
Elliot Wilson
Published on:

ECM re-emerges from lengthy slump; foreign investors jump on slew of mid-sized IPOs.

Narendra Modi Grand Mosque-R-600
In mid-November, premier Narendra Modi gave the go-ahead for the sale of another 10% stake in Coal India


India’s equity capital markets are making a qualified comeback after some lean years. Issuance in the world’s fastest-growing big emerging market ticked up in 2015, as global investors reacquainted themselves with domestic IPOs, and as India’s government sought, not always successfully, to sell stakes in publicly-owned firms. 

ECM issuance in the current year to November 18 was $16.6 billion, a 58% increase on 2014’s figure, according to Dealogic, making this the most active year for equity sales since 2010. Much of that volume stems from state divestments, notably the sale of 10% of Coal India, which raised $3.675 billion in January 2010

In mid-November, premier Narendra Modi gave the go-ahead for the sale of another 10% stake in the world’s largest coal miner, which at current prices should net the government $3.2 billion. 

Initial public offerings by India’s recovering private sector are also making a tentative return. A total of 55 IPOs worth $1.75 billion were completed in the year to November 18, against 84 initial stock sales worth $540 million in the previous two years combined

Key sale

A key transaction was the listing of InterGlobe Aviation, parent company of IndiGo, the country’s largest carrier by market share, whose shares debuted on the Bombay Stock Exchange on October 30. 

The IPO, underwritten by Citi, JPMorgan and Morgan Stanley, raised $464 million, marking the largest onshore stock sale since 2012. InterGlobe shares jumped on debut and continued to rise, closing on November 18 at Rs1045.65 ($15.79) apiece, up 37% from their debut. 

Other well-received deals dot this year’s market. Turbine maker Inox Wind raised $167 million through its initial stock sale in March, its shares jumping 35% on debut. 

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Ravi Kapoor, Citi India
And in the final week of October, Coffee Day Enterprises, owner of a popular chain of coffee houses, raised $177 million through its Mumbai listing. "IPO volumes have been robust when compared to the previous five years," says Ravi Kapoor, head of corporate and investment banking, Citi India. "There is a clear resurgence of IPOs, with [future] issuances of around $1.5 billion already filed with the capital markets regulator." 


A host of young corporates are hoping to sell shares early in the first half of 2016. Investment bankers in Mumbai point to the likes of gas distributor Mahanagar Gas, which filed its listing papers to Sebi on November 16, and aims to raise up to $130 million in the new year. Mumbai based drug maker Alkem Laboratories is set to launch its $210 million IPO in the second week of December. Other firms hoping to raise between $50-$300 million from their stock sales include Narayana Health and Healthcare Global, microfinance specialists Ujjivan Financial Services and Equitas Holdings, and online matchmaker Matrimony.com. 

Bankers also hope the market will accommodate a series of larger deals in 2016, in sectors including toll roads, infrastructure, logistics, and life insurance. 

The latter could generate a chunk of next year’s volumes, with ICICI Pru Life, a joint venture between ICICI Bank and Prudential; and SBI Life Insurance, an alliance between State Bank of India and BNP Paribas, aiming to raise upward of $1 billion from their listings. 

Recent rule changes, including permitting foreign insurers to own up to 49% of a domestic joint venture, make life insurance "increasingly attractive to local and global investors," notes S Subramanian, managing director of investment banking at Mumbai-based Axis Capital. "Also, the life insurance spaces is finally picking after a slow four years."

Finally there is Vodafone. On November 11, the UK-based telecommunications firm said it had begun preparations for listing its Indian unit in Mumbai, most likely in late 2016. India’s second largest operator added 4.4 million new customers in the first half of 2015, taking its total to 188.2 million. 

The sale of a 10% to 15% stake in the division could raise between $2 billion and $3.5 billion, creating the country’s largest ever private-sector IPO. 

New year

Vodafone is expected to ask banks to pitch for underwriting roles in the first weeks of the new year, bankers say. Vodafone, they add, wants to gauge the impact of Reliance Jio Infocomm, a new wireless operator owned by India’s richest man, Mukesh Ambani, and set for launch in early 2016, before pushing on with its sale. 

Investors are likely to remain largely "positive on India", says Citi’s Kapoor, thanks to the "healthy pipeline" of deals set to hit the market in 2016, and the country’s broadly resurgent economy. The World Bank tips India’s economy to expand by 7.5% in the year to end-March 2016, and by 7.8% and 7.9% respectively in the next two years. 

If there is a concern, it is in the unbalanced nature of some of India’s recent stock listings. Foreign institutional investors underpinned InterGlobe’s October listing, which attracted more than 30 anchor investors, including first-time India stock investors such as Harvard Management Co and Dutch pension fund APG – ensuring that the IPO was 6.15 times covered. 

Yet domestic investors were less enamoured with InterGlobe – the retail tranche of the sale was just 0.92 times covered – suggesting, experts say, that local concerns about India’s long-term potential continue to linger. Investors lament that a number of onshore follow-on sales and IPOs have had only lackluster participation from Indian retail and institutional investors. "Foreign investors love India again," says an executive at a leading Mumbai-based asset management firm. "It would be nice if that feeling was shared a little more here."