State-owned phone company's plans to raise $10 billion in the biggest local IPO must overcome waning foreign investor interest in a country whose share markets have dropped by a quarter this year.
There has been no timeline for Bharat Sanchar Nigam's (BSNL) IPO, but the company expects the issue in six months.
Bankers said the target can be met only if the process is fast tracked and other issues such as union opposition are ironed out. While smaller IPOs have been completed this year despite the market selloff, thanks to a large pool of willing local investors, the biggest deals will struggle without foreign participation.
"For foreign funds, equity is definitely no longer the preferred asset class," said Jayesh Shroff, who helps oversee about $3.5 billion at SBI Mutual Fund. "They are quite wary of it and Indian IPOs do not fit their strategy now." Andrew Holland, managing director of strategic investment group at DSP Merrill Lynch, said poor secondary markets, the global credit crunch and nervousness about weakening growth forecasts for India have kept foreign funds on the sidelines.
The government said in January it aimed to list BSNL by selling 10 per cent, but put the plan on hold after opposition from its communist allies and trade unions. India's biggest IPO, January's $3 billion offer from Reliance Power, was subscribed within minutes of opening, helped by big institutional funds.
Foreign funds own 4.7 per cent of the firm or nearly half the stake sold in the initial public offer. Its success was due in part to heavy subscription from foreign hedge funds, overseas banks and portfolio managers. But in July, UTI Asset Management, India's oldest mutual fund, put off a $480 million IPO, joining other heavyweight listing candidates on the sidelines after foreign funds wanted the valuation cut by a quarter.
"It all depends on market sentiment. There is clearly a flavour for public sector stocks but pricing is the key," said Paras Adenwalla, chief investment officer at ING Asset Management (India). "Will a large IPO be subscribed, yes. But the question will be is there anything left on the table for investors to make money after the listing." Some bankers have also said big issues were unlikely to be completed ahead of national elections due by May.
At least 10 firms have delayed or shelved IPOs worth about $4 billion this year due to sluggish demand amid a deep market slide. And the outlook remains downbeat for the rest of the year, in line with the global trend.
"There is a wariness towards taking fresh positions in Indian offerings," said S. Ramesh, chief operating officer at Kotak Mahindra Capital. India's central bank has raised interest rates to a 7-year high of 9 per cent in a bid to tame inflation of close to 12 per cent, and analysts have cut economic growth forecasts and corporate profit appears to be slowing.Firms looking to raise relatively smaller amounts of about 1 billion rupees ($24 million) have, however, managed to scrape through in the last four months helped largely by support from local banks, domestic mutual funds and wealthy individuals. About 10 firms have raised a total of nearly 4.5 billion rupees over the last three months, while two companies hope to raise as much as 2.5 billion rupees in the next two weeks. Indian IPO proceeds fell 7 per cent in January-June to $4.3 billion, data show. Total share sales, including IPOs, fell to $615 million in April-June, the lowest since the last quarter of 2003. Kotak Mahindra Capital's Ramesh said the lull would continue this year, but demand could pick up in early 2009 when global and Indian markets are expected to stabilise.
