Grey market lenders keep off IPO funding

After banks and non-banking financial corporations, it's the turn of grey market financiers to close the door on public issue financing.

Traditionally, grey market financiers lend heavily in the absence of organised players. More so because the public issue season this year promised to be a great event for unorganised financiers because of the dearth of liquidity as it coincided with tax payments for the year.

A top financier at Lyons Range, which represents nearly a third of the country's unorganised finance market, said uncertainty over the listing price is forcing retail inventors and stock brokers to stay put. He cited the poor listing of Patni Computers on Wednesday.

"There is absolutely no taker of money from unorganised market. Investors are not keen on borrowing fund from banks. Therefore, the issue of their taking money from the unorganised market at a premium over bank rates does not arise at all," he said.

That is the demand side of the story. On the supply side, the grey market, which has always been keen on providing funds in the absence of banks and NBFCs, found more risk in providing funds in a choppy market, said a senior badla operator, who used to fund his acquisition cost of shares from borrowing from kaccha bazar.

"The financiers are not sure whether a borrower will be able to make a killing on the listing of shares. If bear hammering continues, there is no guarantee that the IPCL stock, for example, will not be traded below the final bid price. In that case, the borrower will find it difficult to cough up interest," he added.

Sources said grey market financiers provided funds at 15-16 per cent rate for the Patni issue against the bank rates of 10-11 per cent.