Financial institutions like Industrial Development Bank of India (IDBI), Industrial Credit and Investment Corporation of India (ICICI) and Unit Trust of India (UTI) and scores of non-banking finance companies are finding the going tough because of the huge amounts blocked in bought-out deals.
The move by Ambi to seek details of bought-out deals is aimed at determining how many issues are scheduled to hit the market and how much money is locked up in such deals. Market sources put the number of bought-out issues yet to go public between 100 and 125.
According to an IDBI official, the funds locked up in various bought-out deals amount to Rs 800-900 crore. A UTI official estimated the figure to be Rs 1,000 crore. Investment banking sources said the financial institutions' exposure is about Rs 400 crore. Corporates are said to have invested another Rs 500 crore.
Sources said if these issues were to be listed at a premium, to book a profit of at least 24 per cent, (taking into account interest of 12 per cent per annum) the amount to be mopped up would increase by Rs 200 crore. "A collection target of over Rs 1,000 crore -- which is only the break-even figure -- is difficult to hit under the present circumstances," they said.
In 1994-95, a number of smaller firms struck bought-out deals to raise funds. Companies which had been in existence for less than three years then and needed to mobilise Rs 1 to 20 crore favoured this route.
Most leading players in the financial services sector, among them UTI, IDBI, ICICI, ICICI Securities, Apple Finance, ITC Classic, Hinduja Finance and the Videocon group picked up substantial stakes in companies taking the bought-out route.
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UTI had picked up Rs 156 crore in the IL&FS issue, which was one of the bigger deals involving institutions. UTI alone, sources said, has Rs 225 crore locked up in bought-out deals.
Sebi recently exempted offers for sale and bought-out deals registered with the OTC Exchange of India on or before April 16, 1996 from the entry norms for public issues. This is expected to help over 50 companies registered with the exchange to tap the market through this route.
Under the new guidelines, a corporate body planning to make a public issue has to have a record of paying dividends for at least three years of the immediately preceding five, or a project appraised by a public financial institution or scheduled commercial bank with the appraising entity participating in the project finance or the equity of the issuing company to the extent of 10 per cent.