Some companies will be forced to swallow a lower valuation in order to raise money, while a few may have to offer sweeteners, such as additional shares, in order to complete the transaction.
India Inc is likely to raise over $12 billion through a mix of equity, rights, debt issues over the next five months. Most of the money will be used to build power plants, refineries and retail networks and bank branches. Last week, this kind of fund raising would have hardly raised eyebrows among investment banks and corporate finance executives. But today, it makes them break into cold sweat.
“They have to offer more equity to raise required capital. Even if they do so, one is not sure if they can raise the funds because there is a serious dearth of funds in the equity as well as the debt markets across the global,” Ambit Corporate Finance partner and CEO Ashok Wadhwa said.
Tata group plans to raise funds for acquisitions and capital expansion in steel, tea, chemicals, auto, IT and hospitality segments while the Essar group will be raising funds for refinery expansion, vessel acquisitions and power plants construction. The Aditya Birla Group firms, Hindalco Industries and Aditya Birla Nuvo, have also announced similar plans.
In the case of some companies, the fund raising is spread out over a few years, so they can afford a slight delay. Some others can turn to private equity instead of markets, though here again, valuations could play spoilsport. Private equity fund managers are likely to demand a fair and reasonable valuation.
Industry observers said the on-going carnage is expected to delay some of the plans. This could result in an increase in the number of PE deals in the domestic market.
"If the market continues to be choppy, the companies have to revisit their expectation on valuations. The investors, especially, in the QIP and FCCB sectors, may not agree with the projections of corporates. Even long-term investors like private equity firms may force corporates to revise the valuations," a senior official with Ernst & Young said.
However, companies disagree that their fund raising plans will be hit. Essar Power MD Arun K Srivastava, for instance, said power companies will not be hit.
" Power companies, which have got fuel tie-up, clearances from the government and marketing agreements, could raise the required funds. But the companies, which have not firmed up their projects, will be affected when they raise money from the market." JSW Group director finance Sheshagiri Rao also said steel companies would not be impacted.