Fund raising via IPO more than halves in 4 yrs to FY12: Study
Fund raising through initial public offering route reduced by more than half in the four years to 2011-12 with a host of core sector industries such as cement and paper unable to tap the medium, a study has said.
New Delhi: Fund raising through initial public offering route reduced by more than half in the four years to 2011-12 with a host of core sector industries such as cement and paper unable to tap the medium, a study has said.
The total money raised by the companies across a wide spectrum of sectors, including power and other core sectors, was Rs 87,029 crore in 2007-08, which dried up to less than half in 2011-12, the study by industry body Assocham said.
"The worst thing to have happened is that it is the hard core manufacturing sector which is being shunned by investors in the market place, both in the primary and secondary markets. Sectors such as cement and construction, food processing and power are being now considered untouchables," the study said.
"Surprisingly, even the firms in the information technology, the much sought-after sector till recently, are not able to muster courage to raise money in the market," Assocham Secretary General D S Rawat said.
"However, the situation in the case of IT firms is different in the sense that there was not much of requirement either for fresh funds as slowdown in the western markets did not encourage expansion in the industry which was seen more battling with the margins and retaining existing clients," he added.
The sectors which have seen a huge climb down in terms of their capacity to raise funds from the primary market are cement, construction, power, chemicals and electronics.
After banking and finance, cement firms were the second largest fund mobilisers in 2007-08, raising Rs 18,905 crore. In 2011-12, there was negligible amount raised by these companies in the range of single digit.
Companies in the energy sector were able to tap IPO funds to the tune of Rs 13,709 crore in 2007-08. There is a complete famine now with the power sector finding itself in the midst of a messy situation - both in terms of fuel linkages, tariff fixation, land acquisition and regulatory issues.
As per the study, there are no immediate prospects of the primary market improving which could enable the core sector companies to deleverage their debt and clean their balance sheets.
"They are in a kind of vicious circles- no investment, lack of demand, cash flow problems, high interest outgo. It is going to be a long haul before these real sector companies can gather steam again. Unfortunately, many of the companies with a heavy debt from the banks are likely to fall by the way side causing a collateral damage to the banking sector as well," the study said.
Whatever space is seen in the market is expected to be taken by the disinvestment of the PSUs, it said.