Fresh capital raised by firms via IPOs at record high of Rs 39,254 cr

The highest fresh capital this year was raised by food delivery firm Zomato (Rs 9,000 cr), followed by Paytm parent One 97 Communications (Rs 8,300 cr), and PB Fintech (Rs 3,750 cr)

Fresh capital raised by companies by way of initial public offerings (IPOs) has touched a record high this year on the back of large new-age offerings.

India Inc has raised about Rs 39,254 crore in fresh capital by maiden offerings, higher than the previous best of Rs 32,102 crore raised in the year 2007. The highest fresh capital this year was raised by food delivery firm Zomato (Rs 9,000 crore), followed by payments major One 97 Communications, the parent of Paytm (Rs 8,300 crore), and by PB Fintech (Rs 3,750 crore).

In percentage terms, fresh capital raised formed 38 per cent of the overall fundraising of Rs 1.03 trillion done through IPOs. This is higher than the percentage of fresh capital raised in the previous five years.

There have been several years in the past when fresh capital raised has formed more than 90 per cent of the total fundraising done in the particular year. Between 2001 and 2008, for instance, more than 80 per cent of funds raised by way of IPOs were fresh capital.

An IPO can be done either to issue fresh capital or it can entirely consist of an offer for sale (existing investors divesting their holdings) or it can be a mix of both.

A company that raises money as fresh capital may use it for a number of things. It could use the money to pay off existing debt, make acquisitions, or expand its business by building new factories.

Since 2013, secondary share sales have dominated IPOs, with private equity (PE) investors using them to liquidate their holdings. The economic slowdown has also dissuaded companies from embarking on capital-intensive projects, minimising the need for fresh fundraise.

Zomato's IPO consisted of a fresh issue of Rs 9,000 crore and an offer for sale of Rs 375 crore. Paytm’s IPO comprised Rs 8300 crore from issuance of fresh equity and Rs 10,000 crore from offer for sale. Zomato's fresh issue is the third-largest for the domestic IPO market. The largest-ever fresh fundraise through an IPO was by Reliance Power at Rs 10,123 crore in 2008, followed by realty major DLF, which issued fresh shares worth Rs 9,188 crore a year earlier.

“Historically, the role of the primary market has been to enable companies engaged in manufacturing and industrial activities to mobilise money. This theory has been turned on its head. The majority of the fundraising in IPOs today is done to provide an exit and unlock value for private equity and venture capital funds, and that too at exorbitant valuations. This may not be a a healthy sign for the economy, especially when taken to an extreme and given that several manufacturing companies are struggling to raise capital from the market in recent years,” said G Chokkalingam, founder and managing director, Equinomics Research & Advisory.

In the previous decade, companies from the manufacturing sector dominated the IPO scene and tapped the market for funds to set up new plants or expand capacity. The Indian markets may have turned averse to companies requiring capital to sustain the business. Which is why firms from infrastructure, power, and large-scale manufacturing sectors have been struggling to raise equity capital.

In the past few years, companies from the BFSI segment dominated the IPO scene. In the past year, new-age technology companies have come to the forefront for fresh fundraise.

According to experts, while the share of fresh capital in IPOs has reduced in the last few years, it could reflect new market realities. Companies are now increasingly depending on private equity (PE) and venture capital (VC) funds for initial capital, unlike in earlier decades when early growth capital also came from public markets. This is similar to the trend seen in developed countries and may translate into better corporate governance because such funds typically conduct greater due diligence on their investments.