Domestic institutions have issued commercial papers worth more than Rs 32,500 crore to fund IPOs of Ujjivan and CSB Bank. IIFL, Infina Finance, Aditya BirlaNSE -2.12 % Finance, JM FinancialNSE -5.10 % and Sharekhan BNP Paribas are among the institutions that have issued commercial papers, mostly for a 14-day period offering 7.5-8.0 per cent yield, specifically to fund these IPOs.
Out of the 15 IPOs so far this year, only three — Affle India, IRCTC and CSB Bank — were financed by the NBFCs, but this would be the highest amount raised this year. In 2018 only three of the 24 IPO saw demand for IPO finance.
Ujjivan Small Finance Bank’s Rs 750-crore initial public offering, which opened for subscription on Monday, could see a good response because of the funding, said market participants. The issue was fully subscribed on day one.
The high net-worth individual (HNI) portion of the just-concluded Rs 400-crore IPO of CSB Bank (formerly Catholic Syrian Bank) was subscribed 165 times. Ujjivan’s maiden issue, with a price band at Rs 36-37 per share, will close on December 4.
“We are very selective about doing CP borrowing and typically opt for this route when there is certainty that the money is required for a very limited period of time and there is absolute certainty that the money will come back to us in the stipulated time,” said Niraj Murarka, head – credit at IIFL Wealth that raised a total of Rs 4,000 crore to fund the two IPOs.
Infina Finance issued CPs worth Rs 8,500 crore for financing the two IPOs while India Infoline Finance has raised Rs 5,000 crore only for Ujjivan IPO. Aditya Birla Finance and JM Financial Properties issued CPs worth Rs 5,000 crore and Rs 4,000 crore, respectively, while IIFL Wealth Finance and JM Financial Products raised Rs 3,000 crore each to fund both the IPOs. Sharekhan BNP Paribas Financial ServicesNSE -1.91 % raised Rs 2,000 crore, while IIFL Wealth Management and JM Financial Capital issued CPs worth Rs 1,000 crore each for the same purpose.
“Both HNIs and NBFCs involved in the IPO funding are aware of the grey market premium and number of times issue would be subscribed,” said Arun Kejriwal, CEO at KRIS Research & Advisory. “Accordantly they calculate the cost of the application and net gain on listing,” he said. In the case of CSB Bank, which had a price bank of Rs 193-195 per share, for allotment of one share, with 7.5 per cent interest rate, the estimated cost for an investor would be Rs 46.28.
So, if the listing price is above Rs 241.27, HNIs would make profits. If the interest rate is 8 per cent, the cost per share would be Rs 49.36. Here HNIs will make profit only if the issue gets listed above Rs 244.36. CSB Bank share is expected to be listed on Wednesday. The share’s grey market premium was about Rs 60-62.
“The lower interest rate of 7-8 per cent annually is excluding the interest what they are getting from the money blocked in the Asba account,” Kejriwal said.
Under Asba, or Applications Supported by Blocked Amount investors apply through bank and their account gets debited only when shares are allotted to them.