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Journalism of Courage
It8217;s not the IPO market alone which is humming with activity. Companies 8212; mostly small and medium-sized 8212; are rushing to the overseas market to raise funds through global depository receipts GDRs.
Five firms have already raised 464 million around Rs 2,040 crore from the international markets through GDR offerings this year. This is almost double of 228.6 mn raised by nine companies in 2004 and 63.09 mn mobilised by four companies in 2003.
Significantly, small and medium companies are now taking the GDR route to raise funds this time. 8216;8216;Delays, tough scrutiny and greater disclosures in India are forcing many companies to look at the GDR market for fund mobilisation. But this may not work all the time,8217;8217; said a merchant banker.
8216;8216;There is bound to be a rush for GDR issues abroad as we have seen a negative trend in markets here with the dollar strengthening. It looks better to do it now,8217;8217; says Amitabh Chakravorthy, head of research, Kotak Securities.
Videocon Industries, Lyka Labs, Indian Overseas Bank, Srei Infrastructure Finance, Jubilant Organosys, Maharashtra Seamless, Moschip Semiconductors, and Crew BOS are planning GDR issues.
Two banks 8212; UTI Bank 240 million and Centurion Bank 70 million 8212; raised funds from the GDR market recently. Reasons: stock markets are in the bull orbit and companies don8217;t want to add more debt by going in for bonds at a time when interest rates are rising.
Now the situation is such that companies are rushing to the GDR market even for a small amount. Fo example, Opto Circuits has decided to go for a GDR issue of 20 mn with a green-shoe option of 5 mn. The share price of this company shot up by 370 per cent from Rs 34 on May 17, 2004 to around Rs 160 on the BSE recently.
Market pundits say companies now prefer GDR over FCCB issues in view of the rise in interest rates abroad. What has come handy for some of the companies with poor trackrecord is that there are no end-use restrictions on GDR/ADR issue proceeds, except for a ban on investment in real estate and stock markets.
In December 2004, Indian companies raised a record 2.2 bn as borrowings but this figure came down to 600 mn by January. But the rush of companies to raise money through FCCBs is continuing. Aarti Drugs Ltd on Monday informed the BSE that it has decided to raise 12 mn by issuing FCCBs.
As per the existing rules, companies can issue FCCBs up to 50 mn under the automatic route; for 50-100 mn, the companies have to take RBI approval and for 100 mn and above, prior permission of the MoF is required.
