Citi says fund-raising abroad will be phenomenal in 2004

Overseas fund raising through equity by Indian companies is all set to see a phenomenal rise in 2004, top Citigroup officials told Business Standard .

According to Pramit Jhaveri, head of investment banking, Citigroup, the issuance of equity "" domestic IPOs, ADRs/GDRs and convertible bonds "" by Indian corporates could be over $6 billion during the year, as against less than $1 billion in 2003.

"The government's divestment programme would result in issuance of over $4 billion and the private sector could issue over $2 billion," he said. Spelling out the reasons for the improved projections, Citigroup CEO (India) and area head (Bangladesh, Nepal and Sri Lanka) Sanjay Nayar said: "The equity valuations are up with the rise in the stock markets. So this is a good time to raise money."

Jhaveri added that frontline companies in several industries are today functioning at very high rates of capacity utilisation and growth in the future will have to come from expansions.

This would make companies go to the markets, domestic as well as overseas, to raise funds. He also said that the finances of companies are today in a better shape than before, which would help in raising money from the markets.

"In the last few years, several companies have restructured their operations. As a result, their balance sheet now looks very good," Jhaveri added.

There could also be heightened activity in selling convertible bonds (a combination of debt and equity) during the year, Nayar and Jhaveri added.

To begin with, US dollar interest rates are at a historic low. Two, the upgrading of India's rating first by Fitch Ratings and then by Moody's Investor Services will help Indian companies get finer rates.

"The upgrade by the two rating agencies will bring about a rate compression of 15-20 basis points for Indian companies. It is good for any company that wants to avail of the low rates and sell their equity story as well," Nayar said.

Jhaveri said at present there is a mismatch between overseas capital flows into the secondary market and the flow into the primary market.

"Out of the total investments of $6.5-7 billion by foreign institutional investors in 2003, a majority went into the secondary market. At the same time, the total primary market raising (international as well as domestic) during the year was less $1 billion. This is an unequal balance. But there is significant interest in India. This suggests that the issuance of equity this year will be much higher."