 "The delisting regulations in India need a relook: Sunil Sanghai")
The government has set the tone for revival in private sector investments, which will boost the capital markets, says Sunil Sanghai, managing director and banking head at HSBC India. Also head of business chamber Ficci's capital markets committee, he tells Samie Modak that India's delisting norms need to be eased and there will be enough demand for government paper. Edited excerpts:
Though the secondary market has been robust, we are yet to see big initial public offerings (IPOs). What’s the outlook for equity capital raising by private companies?
For large IPOs, we need large projects. I believe there is enough demand for good-quality IPOs – it’s not a question of demand but of supply. In the past three-four years, there haven’t been too many significant projects and that’s why large-ticket IPOs haven’t happened.
Do you see IPOs by Indian e-commerce companies in the near term?
They are able to attract a lot of private capital. Private equity (PE) is bridging the immediate IPO requirement. There are a lot of deep-pocketed PE investors in India. E-commerce and similar high-growth companies are a preferred target for PE investments. As these investments mature, we will see PEs exiting through the IPO route.
Will the government achieve its disinvestment target (for the year)? Can the market absorb that kind of paper supply?
I don’t see much issue in the government achieving it. There are three or four large issues in the pipeline, including Coal India and ONGC, that itself will take care of the bulk of the target.
There is a lot of interest around India. You can say there is India euphoria. I have been traveling extensively and meeting investors across the globe. There is lot of positive momentum and a lot of money waiting to be deployed. We have some very high-quality companies in the public sector. For these, there will be enough demand. Therefore, meeting the divestment target shouldn’t be a problem.
The government has allowed unlisted companies to access the market abroad. Do you see Indian companies tapping this opportunity?
The reason why someone will want to list outside India before listing in the home market is primarily for valuation
differential. Disclosure requirements are almost at par. I don’t see too many sectors where there is a significant valuation differential between India and the global markets. Therefore, I am not too sure that many companies will take this route. At one point, there was a huge valuation differential in some sectors such as information technology. Now, such arbitrage isn’t available.
The government has proposed to give a fillip to Indian depository receipts (IDRs). Will this see more IDRs entering the market?
To my understanding, foreign companies are not looking at the Indian market for raising resources. In the past, they got listed in India because of the regulatory requirements. So, if raising capital isn’t the primary objective, we might not see too many IDRs.
Should delisting regulations in India be eased?
We need a robust framework around delisting. India should allow both entry and exit in a smooth manner to everyone. Globally, there is a concept of taking a company private and we should follow a similar concept in India. I also believe the reverse book-building process for the price discovery for delisting needs a relook.
We saw several large voluntary open offers by foreign promoters in 2013. Most of these were managed by HSBC. Are conditions suited for more such offers, given the currency and liquidity position in India?
Currency and liquidity might influence timing decisions and not really a strategic rationale. If someone is trying to increase the holding in their own company, it is a long-term strategic decision, not governed by the liquidity and exchange rate scenario. I believe global corporations are more comfortable with a larger holding or even complete private ownership.
So, those offers were a precursor to taking these companies private?
I wouldn’t know that.
Though the secondary market has been robust, we are yet to see big initial public offerings (IPOs). What’s the outlook for equity capital raising by private companies?
For large IPOs, we need large projects. I believe there is enough demand for good-quality IPOs – it’s not a question of demand but of supply. In the past three-four years, there haven’t been too many significant projects and that’s why large-ticket IPOs haven’t happened.
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Post the election of the new government, we have seen a spate of qualified institutional placements,mainly focused on deleveraging or refinancing and not for new project implementations. We need more new projects for revival of the IPO market. The new government has made significant policy announcements for revival of the economy. Implementation of these should help the capital markets.
Do you see IPOs by Indian e-commerce companies in the near term?
They are able to attract a lot of private capital. Private equity (PE) is bridging the immediate IPO requirement. There are a lot of deep-pocketed PE investors in India. E-commerce and similar high-growth companies are a preferred target for PE investments. As these investments mature, we will see PEs exiting through the IPO route.
Will the government achieve its disinvestment target (for the year)? Can the market absorb that kind of paper supply?
I don’t see much issue in the government achieving it. There are three or four large issues in the pipeline, including Coal India and ONGC, that itself will take care of the bulk of the target.
There is a lot of interest around India. You can say there is India euphoria. I have been traveling extensively and meeting investors across the globe. There is lot of positive momentum and a lot of money waiting to be deployed. We have some very high-quality companies in the public sector. For these, there will be enough demand. Therefore, meeting the divestment target shouldn’t be a problem.
The government has allowed unlisted companies to access the market abroad. Do you see Indian companies tapping this opportunity?
The reason why someone will want to list outside India before listing in the home market is primarily for valuation
differential. Disclosure requirements are almost at par. I don’t see too many sectors where there is a significant valuation differential between India and the global markets. Therefore, I am not too sure that many companies will take this route. At one point, there was a huge valuation differential in some sectors such as information technology. Now, such arbitrage isn’t available.
The government has proposed to give a fillip to Indian depository receipts (IDRs). Will this see more IDRs entering the market?
To my understanding, foreign companies are not looking at the Indian market for raising resources. In the past, they got listed in India because of the regulatory requirements. So, if raising capital isn’t the primary objective, we might not see too many IDRs.
Should delisting regulations in India be eased?
We need a robust framework around delisting. India should allow both entry and exit in a smooth manner to everyone. Globally, there is a concept of taking a company private and we should follow a similar concept in India. I also believe the reverse book-building process for the price discovery for delisting needs a relook.
We saw several large voluntary open offers by foreign promoters in 2013. Most of these were managed by HSBC. Are conditions suited for more such offers, given the currency and liquidity position in India?
Currency and liquidity might influence timing decisions and not really a strategic rationale. If someone is trying to increase the holding in their own company, it is a long-term strategic decision, not governed by the liquidity and exchange rate scenario. I believe global corporations are more comfortable with a larger holding or even complete private ownership.
So, those offers were a precursor to taking these companies private?
I wouldn’t know that.