Leading the equity issuances in the private sector are highly
leveraged firms such as GVK Power & Infrastructure Ltd, Adani
Enterprises Ltd and others in capital intensive industries such as
infrastructure, metals and telecommunications, bankers say.
These companies borrowed heavily in the past few years, when India's
economy was one of the fastest growing in the world, but were
squeezed by the slowdown in growth last year and the slide in the
rupee to record lows.
In most cases, banks stopped giving fresh loans to these indebted
companies, whose loans often exceeds their equity several times
over, leaving them with few options but to tap the equity market to
raise money to reduce their debt.
"There will be a stampede of Indian companies going to the markets
and trying to reduce leverage to take advantage of this some kind of
Modinomics," said Eric Mookherjee, a Paris-based fund manager at
Shanti India, which manages Indian stocks.
"The access to capital is much easier now, and you need to clean up
your balance sheet before you get into the investment mode again.
So, the engine has now been started."
Bankers say 2014 is poised to become the best year for equity
offerings in India since 2010, which saw some $24 billion raised by
state-run and private companies.
In 2014, state-run firms are expected to raise up to $6 billion via
share sales, which, in addition to the $5.4 billion already raised
in the first-half of the year and the anticipated issuances by the
private sector, would bring the total amount to around $16 billion
for the year, according to investment bankers' estimates and Thomson
The rush to raise capital could gather speed if the federal budget
on July 10 paves the way for a revival of the economy after the
longest spell of growth below 5 percent in a quarter of a century,
Business-friendly Modi was elected by a resounding majority in May
and since then, the benchmark stock market index has risen nearly 9
percent to touch record highs, lifted by his pledges to boost growth
and create jobs.
Some bankers, however, cautioned that "Modinomics" may not provide
an instant revival, meaning indebted firms, whose fortunes are
linked to the domestic economy, may see a delay in the pick-up in
"Everybody is getting very euphoric but not sure if all these
expectations would be met in the near future," said a senior
investment banker at a large U.S. bank who declined to be named as
he was not authorised to speak to the media.
For now, companies are pressing ahead with raising funds. In a sign
of the times, Jaiprakash Associates Ltd and GMR Infrastructure Ltd,
two of the most indebted mid-sized Indian companies, on Thursday
raised $250 million each by selling shares. The companies will use
the funds to repay some debt, bankers involved in the deals said.
[to top of second column]
Jaiprakash has a total debt of $10 billion, giving it a debt to
equity ratio of 5.9 times compared to an industry average of 0.69,
while GMR with debt of $6.5 billion has a debt to equity ratio of
5.1 times, according to Thomson Reuters data.
The share offerings by the two companies came a week after mobile
phone operator Reliance Communications Ltd raised $800 million in
what was India's biggest share sale since the Modi government
assumed office in May.
A sluggish economy and stalled bureaucratic decision-making for the
past two years thwarted capital investment and dented earnings,
making it tough for the companies to raise funds.
At the end of 2013, some 37 percent of Indian corporate debt was
owed by companies whose earnings were not enough to cover interest
payments, up from 34 percent in July-September, according to Credit
The rupee's weakening also substantially increased the rupee-value
of outstanding dollar debt and the amount of rupees needed to fulfil
interest payments - factors that weighed on the balance sheet of
Since the Modi government took office, however, the outlook for the
economy and corporate earnings growth has improved.
The average revenue of 24 companies in the infrastructure sub-index,
which includes highly indebted firms including Reliance
Communications and Jaiprakash, should rise 10.3 percent in this
fiscal year to March from 8 percent last year, according to Thomson
"The worst is over. The companies' operating performance has
bottomed out," said Deep Mukherjee, senior director, corporate
ratings, at India Ratings & Research, a Fitch unit.
(Additional reporting by Tommy Wilkes in NEW DELHI and Tripti Kalro
in BANGALORE; Editing by Miral Fahmy)
[© 2014 Thomson Reuters. All rights
2014 Reuters. All rights reserved. This material may not be
published, broadcast, rewritten or redistributed.