U.S. Lures Firms With IPOs as Home Demand Drops: Corporate India

Indian companies are planning to sell shares in the U.S. for the first time since 2010 lured by rising prices in the world’s biggest market for equities as an economic slowdown at home makes initial public offerings unattractive, according to Jefferies Group LLC.

For drugmakers, consumer goods companies and technology firms, selling shares in the U.S. is a good option to raise funds, said Probir Rao, Mumbai-based managing director at Jefferies. Energy, metals and mining businesses are seeking to list in the U.K., while infrastructure firms are looking at IPOs in Singapore, he said.

U.S. stocks rose to a record this year while India’s benchmark S&P BSE Sensex dropped 1 percent amid rising volatility. The value of IPOs in Asia’s third-largest economy have dropped 55 percent to 3.5 billion rupees ($64.7 million) since January, the lowest in four years, according to data compiled by Bloomberg. Companies including state-run Rashtriya Ispat Nigam Ltd. and packaging company Plastene India Ltd. have pulled first share sales in the past year, data show.

“There is so much uncertainty and volatility in the Indian market today that we are just not seeing the best conditions from a fundraising perspective,” Rao, who’s also the head of investment banking at India’s second-ranked merger adviser, said in an interview. “There are enough sectors where there is a significant valuation arbitrage between stocks listed in India than those listed say in Nasdaq or NYSE.”

Sensex’s Volatility

Sensex’s 30-day volatility fell to 15.24 from the highest in nine months, while the measure is at 10 for the Dow Jones Industrial Average, which reached a record on April 11. The Indian benchmark fell 0.2 percent at 10:05 a.m. in Mumbai.

The U.S. led IPO fundraising in the first quarter, with companies selling $8.91 billion of shares, was 44 percent more than a year ago, data compiled by Bloomberg show. European companies sold $3.66 billion of stock, a 25 percent increase. IPOs fell 59 percent to $2.88 billion in Asia. Companies in industries from homebuilding to retail are fueling a pickup in U.S. IPOs this year.

The U.S. Bloomberg IPO Index has gained 10 percent this year, compared with a 14 percent drop in the Bloomberg India IPO Index.

Bharti Infratel Ltd., which raised 41.7 billion rupees in India’s biggest share sale in two years in December, has lost 8.5 percent since it began trading on Dec. 28. V-Mart Retail Ltd. has declined 14 percent since it listed on Feb. 20.

Business Trust

IYogi, an online technical support services company backed by Sequoia Capital, plans to raise about $200 million in a U.S initial public offering, two people with knowledge of the matter said in July.

Mytrah Energy Ltd., India’s third-largest wind farm developer, may raise about S$500 million ($403 million) by listing as a business trust in Singapore, two people with knowledge of the matter said yesterday. GMR Infrastructure Ltd., operator of India’s biggest airport in New Delhi, is also planning to sell some of its toll road assets in the city state, five people with knowledge of the matter said in February.

“Indian companies seeking better valuations in overseas markets will emerge as a sustainable trend,” said Sumeet Jain, Mumbai-based senior technical analyst at Asit C Mehta Financial Services Ltd. “This is just the beginning. The political uncertainty is keeping the equity markets capped in India.”

Budget Shortfall

India’s gross domestic product rose 5 percent in the year ended March 31, the weakest pace since 2003, the statistics agency estimates. The government has changed policies since September to open the $1.8 trillion economy to more investment, curb the budget shortfall and speed up stalled infrastructure projects.

India’s wholesale price inflation reached a more than three-year low of 5.96 percent in March even as the consumer index exceeded 10 percent, the second-fastest pace among the Group of 20 economies.

Still, the lure for listing overseas may be temporary, said Gajendra Nagpal, chief executive officer at Unicon Financial Intermediaries Pvt. “With the sentiments and fundamentals improving in the domestic markets, I expect this to end.”

MakeMyTrip Ltd., the first Indian company in four years to sell shares in the U.S. in 2010, has fallen more than 60 percent since its post-IPO high in September 2010, compared with an increase of about 40 percent for the Nasdaq Composite Index. The online plane and hotel booker raised $70 million in August 2010.

Merger & Acquisitions

Jefferies, which agreed to be acquired by Leucadia National Corp. for $2.8 billion, started its operations in India in 2009. The firm is also looking at domestic equity capital market business and has a “few deals in the pipeline,” said Rao. It is also looking to grow its leveraged finance business in India, mainly funding acquisitions, he said.

The investment bank, which advised $1.6 billion of acquisitions transactions in India this year sees merger deals rising “once the balance sheet of Indian companies improves,” Rao said. The volume of mergers and acquisitions in India has dropped in the first-quarter to $4.65 billion, the lowest since 2009.

Rao forecasts that as many as 40 percent of the foreign acquisitions by Indian companies will be to buy energy assets, in the next few years. Overseas firms may be keen to buy Indian companies in industrials, technology, pharmaceuticals and consumer goods, he said.

The New York-based investment bank is working with a few companies to help them sell shares overseas, Rao said, without identifying firms.

“Indian companies have to find the equity first and get the balance sheet in a better state,” Rao said. “What has been lacking in a lot of balance sheets have been equity.”