India’s $10 bln IPO hopes to buck frail market

India's state-owned phone company's plans to raise $10 billion in the biggest local IPO must overcome waning foreign investor interest in a country whose share markets have dropped by a quarter this year.
There has been no timeline for Bharat Sanchar Nigam's BSNL.L IPO, but the company expects the issue in six months. Bankers said the target can be met only if the process is fast tracked and other issues such as union opposition are ironed out.
While smaller IPOs have been completed this year despite the market selloff, thanks to a large pool of willing local investors, the biggest deals will struggle without foreign participation.
"For foreign funds, equity is definitely no longer the preferred asset class," said Jayesh Shroff, who helps oversee about $3.5 billion at SBI Mutual Fund. "They are quite wary of it and Indian IPOs do not fit their strategy now."
Andrew Holland, managing director of strategic investment group at DSP Merrill Lynch, said poor secondary markets, the global credit crunch and nervousness about weakening growth forecasts for India have kept foreign funds on the sidelines.
The government said in January it aimed to list BSNL by selling 10 percent, but put the plan on hold after opposition from its communist allies and trade unions.
India's biggest IPO, January's $3 billion offer from Reliance Power, was subscribed within minutes of opening, helped by big institutional funds. Foreign funds own 4.7 percent of the firm or nearly half the stake sold in the initial public offer.
Its success was due in part to heavy subscription from foreign hedge funds, overseas banks and portfolio managers.
Some bankers have also said big issues were unlikely to be completed ahead of national elections due by May.
At least 10 Indian firms have delayed or shelved IPOs worth about $4 billion this year due to sluggish demand amid a deep market slide. And the outlook remains downbeat for the rest of the year, in line with the global trend.
"There is a wariness towards taking fresh positions in Indian offerings," said S. Ramesh, chief operating officer at Kotak Mahindra Capital.
India's central bank has raised interest rates to a 7-year high of 9 percent in a bid to tame inflation of close to 12 percent, and analysts have cut economic growth forecasts and corporate profit appears to be slowing.
Firms looking to raise relatively smaller amounts of about 1 billion rupees have, however, managed to scrape through in the last four months helped largely by support from local banks, domestic mutual funds and wealthy individuals.
About 10 firms have raised a total of nearly 4.5 billion rupees over the last three months, while two companies hope to raise as much as 2.5 billion rupees in the next two weeks. (Reuters)