MUMBAI: The upswing in the stock market since early March has provided a lifeline to promoters of cash-starved companies, helping them raise the much-neede funds. So far, it has been the frontline companies that have benefited from the improved sentiment on bourses.

Merchant banking circles expet a flurry of preferential allotments and qualified institutional placements (QIPs) in the near future if the marke stabilises at these levels, as plenty of second-line companies too are in dire need of capital.

While cedit lines have eased up significantly, most promoters seem to prefer raising money from capital markets. Merchat banking officials say lenders are still not comfortable loaning large amounts to mid- and small-cap compaies.

“Thee has been quite a few secondary market sales by promoters and investors to raise money, or exit their invstments profitably, thanks to the buoyant stock market ,” said Sanjay Sharma, head of equity capital market at Detsche Bank Group, which acted advisor to the DLF stake sale, along with JPMorgan.
“Raising money through secondary market transactions is much faster than a primary issuance since such placements QIP, Follow-on Offering or IPO) take more time to execute and need stable market conditions,” Mr Sharma added.There has been relief for companies in terms of cost of funds from banks as well. “There has been a vast improvemen in the liquidity scenario in the domestic market in the past few weeks,” said Ritesh Jain, executive director &fixed income head, Morgan Stanley Investment Management.

“If we consider top-rated companies, which include largecorporates and public sector companies, their cost of borrowing is down by around 250-350 basis points,” explined Mr Jain. Market observers say while the real estate sector is not out of the woods yet, risk aversion for thi segment has definitely softened in the past couple of months. Over the past one month, leading property deelopers Unitech and DLF were able to raise amounts that were thought to be impossible not long ago.

Cash-strapped Unitech raised $325 million, or Rs 1,621 crore, by way of a QIP at Rs 38.5 per share while DLF romoters raised Rs 3,860 crore by selling 9.9% in the company through open-market transactions. “Most CEOs say demand (for their products) will still take some time to pick up,” says Edelweiss Capital chairan Rashesh Shah. “However, the big relief is that the cost of borrowing has come down significantly, which willease the strain on their balance sheets,” he added.

But upbeat stock prices and lowr cost of funds have not benefited everybody. Bharati Shipyard picked up 14.89% in
Great Offshore after the promoers of Great Offshore were unable to repay the loan they had raised by pledging shares with Bharati. Similarl, lenders dumped GHCL shares pledged by the promoter after payment obligations were not met.

source: Economictimes

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