Market crash set to hit ADRs

Most of the Indian ADR issues are predictably from the ICE (infotech, communication and entertainment) sector. Infotech and telecom companies were severely hit on the Nasdaq in the last week. Two Indian companies listed on Nasdaq — Infosys and Satyam Infoway — crashed on Friday. While Infosys fell by 18 per cent, Satyam plunged by 22.37 per cent. This comes close on the heels of a pounding on Thursday.

Zee Telefilms, which has planned a mega ADR issue to mop up $ 1.5 billion in the next two months, is likely to find the going tough. Others which have planned ADR issues are: Wipro ($ 500 million), Dr Reddy’s Laboratories ($100 million), Nicholas Piramal ($ 100 million), Rolta, Mastek, Rediff and Aptech ($ 125 million). NYSE chairman Richard Grasso and Nasdaq president A Berkeley visited India recently to facilitate speedy listing of Indian companies.

“The US market has gone for a toss. It will remain highly volatile in the next a few weeks,” said an analyst. Even in the US, a slew of secondary stock offerings have been cancelled as the dramatic fall in US financial markets has ruined investors’ appetites for fresh shares. SciQuest.com Inc earlier this week withdrew its offering to sell two million shares of common stock because of market conditions. Its shares have plummeted more than 75 per cent since it filed with regulators on March 15 to sell the stock. Also, because of market volatility and market conditions, gene-hunting firm Genome Therapeutics Corp withdrew a share offering, and Network Access Solutions Corp, seller of telecom equipment and provides high-speed data services, pulled its secondary offering. Several initial public offerings have been pulled, including Zefer Corp and iSky Inc, a firm that collects customer data to track buying behaviour which withdrew a planned $34 million IPO.

With the value of their share investments depreciating rapidly, US investors are unlikely to offer equity in the near future. “If the general market is unhealthy, in the sense of prices going down, there’s not going to be any appetite for stocks,” said an analyst, adding, “even if a company goes for an ADR issue, it may not get the desired price.”

However, Indian companies are putting a brave front. Software firm Silverline Technologies Ltd said it is going ahead with its plan to raise $125 million through an ADR issue despite Friday’s historic tumble in the US stock markets. “We are working at great speed towards listing our ADRs on the New York Stock Exchange. We are looking at the ADRs from a long-term business perspective and are not in the valuations game,” a company official was quoted as saying, adding, “I don’t think we are going to change our plans.”

The recent overseas offerings by ICICI Bank and Software Solutions had evoked good support from foreign investors. If the crash continues, the equity offerings will sharply fall even in the domestic new issue market. Nearly 101 Indian infotech companies have announced their plans to float public offerings to raise over Rs 5,000 crore from the public. Many of them had even planned a huge premium. Now investors are unlikely to blindly rush into such a mess in the near future.