India has been on a lockdown since March 24, as the country’s authorities grapple with ways to contain the spread of the coronavirus. On the capital markets front, no Indian firm has raised international bonds since early March, while no ECM deals have come to the market since mid-April.
There is clear desire to raise equity capital, however, with a string of issuers laying out plans for large amounts of fundraising in the past two months. Among them are Bank of Baroda, Kotak Mahindra Bank and Punjab & Sind Bank, which are eyeing around $1.8bn, $1bn and $195.2m in fresh equity, respectively.
That has put the focus on rules governing QIPs, the most popular, and quickest, way for issuers to raise capital from institutional investors by selling either straight equity or equity-linked products.
But QIPs come with stringent rules around pricing.
These deals are launched using a floor price — pre-approved by the Securities and Exchange Board of India (Sebi) — with the final terms determined through a public bookbuilding process. But the typical pricing formula only allows issuers to price the new stock at up to a 5% discount to the floor price.
That’s not nearly enough, especially under the circumstances. India’s markets are suffering from bouts of volatility, as was seen on Monday when benchmark indices tanked following the extension of the nationwide lockdown until mid-May. Both the NSE Nifty 50 Index and the S&P BSE Sensex Index are down about 23% year-to-date.
A group of Indian investment banks are calling for a change. They have written to Sebi, asking it to allow for an up to 10% discount to the floor price for QIPs, GlobalCapital Asia understands.
The regulator should jump at the chance to respond to a market that is trying to restart following the beating taken in the first quarter. The QIP relaxation is in no way arbitrary, but can give issuers hoping to raise equity an important window of opportunity.
Sebi has shown in the past that it is a regulator that takes market feedback into consideration. It needs to do the same again.
There is already a precedent to easing regulations amid the pandemic. Sebi announced a one-time loosening of rules governing IPOs and rights issues in April, which included allowing for extensions on listing approvals and changes in deal size without refiling.
It only makes sense that Sebi eases rules around QIPs too to give the market a boost.
Issuers are looking for a way to raise equity, and ECM bankers are trying to bring them to market. The only thing holding them back is a pricing cap on QIPs. Sebi should act soon.