Hemant Ipo

Bank IPOs: An investing checklist By Equitymaster.com The primary market (IPO) for equities seems to be witnessing a revival of sorts with the stock markets going through a bullish phase. While this is a general behaviour that is observed in periods of bullish stock markets, we would like investors to be cautious regarding the decisions (in terms of IPOs) they take. This is because companies in order to take advantage of the positive sentiment sometimes take retail investors for a ride, and hence investors need to be extra careful regarding the same. Public sector banks, off late, have been successful in tapping the primary markets. There have been two IPOs already in 2003, with another one is scheduled in the next few days. What should retail investors consider as far as bank IPOs are concerned. While in our earlier article Check List for Investors we had addressed this topic, i.e. a checklist for retail investors in more general terms, in this article we would like to enumerate the checklist that investors need to focus on as far as Bank IPOs are concerned. Does the retail investor easily understand the sector, its dynamics and its prospects? Since we are discussing about the banking sector, the investor needs to first understand the sector dynamics thoroughly before making any investment decision. A detailed article on how the banking industry functions, has been carried by us. The current status as well as the prospects of the industry has to be analysed well. Is track record of the bank important? The performance history of the bank is a very important factor that needs to be considered when analyzing any company. The history indicates the strategies adopted by the bank, its success or failures and whether it is a laggard or a leader. The financial performance of the company indicates the effects of the decisions it has taken in the past. It also indicates the financial health of the bank. The history of the bank should also be analysed well enough to understand the position of the bank in the sector as a whole. Further, in case of banks it is imperative that one looks in to the quality of assets (NPA levels) that the bank has in its books. This will indicate whether the bank will be able to survive in case of any sudden pullout by customers. This is because the bank is responsible towards its depositors to ensure a good quality of assets, which will essentially protect their interests. The past should also be studied to analyse the performance of the banks and their management. Management performance and corporate governance are key factors that need to be looked in to, especially for banks, as they deal with a large quantum of retail money and hence they are more accountable to the same. Transparency and disclosure levels are other key areas that need to be looked in to. A bank that has been unable to shield the depositors' monies, is unlikely to do justice to its shareholders funds.

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How relevant is competition in case of banks? Competition plays a key role in any sector. Competition is intense in the banking sector, which in the Indian context is highly fragmented. Competition in the banking sector determines the spreads that individual banks earn over their lending portfolios. When one analyses competition in case of this sector, the emphasis has to be on a thorough analysis of the bank's relative standing in the sector. One needs to analyse whether the bank is a follower or a leader (as far as strategies are concerned) in the sector. What role does management background play in the analysis? Apart from all these factors the management standing and expertise of the bank is also an important factor that needs to be looked into. Management and its composition in relation to the promoter holding in the bank needs to be carefully looked into. The analysis of the management is important, as one may be able to assess the probability of the bank keeping to its targets, based on the management's capabilities. The assessment of the management capabilities can be done only if one delves deeper in to the track record of the bank, and the management's role in the same. Where does the money go? Investors need to know what is the stated objective of the bank as far as the IPO is concerned. Banks need to raise capital for various reasons and one of the foremost among them are for augmenting capital (for growing the quantum of business). An IPO will augment the Tier-I capital of the bank, which will help the bank to do more business. How do you put all the above in a snapshot? The questions above will help the investor to assess the nature of the banking industry and the bank's position and performance relative to competition. Investors now need to look deeper in to what all this means for the stock price of the bank. The stock price or the valuation of the bank is dependent on almost all the factors that have been mentioned above. A detailed analysis of the bank's financial performance over the years would help us compile certain key ratios relevant to the sector. These ratios when compared to that of other banks will give us an idea of the relative financial standing of the bank among its peers. Once this is done we will be in a better position to try and arrive at a fair valuation for the bank stock. This will give us an indication of the fairness of the IPO in terms of pricing of the issue.

A lot of investors jump into the IPO bandwagon in a market bull run, hoping to make a killing when the IPO lists, even if they understand that the concerned bank may not be a worthwhile investment. The idea is that in a bull run, everything will fly, irrespective of the fundamentals. Such a strategy seems to rely on the `bigger fool' theory. But one must remember, this strategy could backfire. Research is the key to successful investing, whether in a bull or a bear run.

http://www.blonnet.com/2006/09/21/stories/2006092104701500.htm Stock Markets Money & Banking - Investment Banking

Bankers impose more self-checks prior to IPOs Shailesh Menon Focus on sector-specific offerings for more credibility Track record Merchant bankers analyse the quality of management of the company and viability of the offering to investors. Stringent quality standards have forced lead managers to focus on issues falling in profitable and promising sectors. Mumbai , Sept. 20 Termed as an effort to save gullible investors from fly-by-night operators coming out with IPOs, merchant bankers are imposing more self-checks before taking up public issues. Many have even begun focusing on sector-specific offerings to add quality and credibility to their issue profile. According to lead managers, stale offerings (that even include IPOs of unprofitable companies) and issues "not made in good faith", lower the credibility levels of merchant bankers. Several "hollow issues" in the past (mostly in the mid and late 90s) have adversely affected their gradation and performance track record, they say. "The reputation of a lead manager is heavily dependent on the issue he manages. Only a sound performance track record can make you want for companies planning to come out with IPOs. The whole idea is to dispirit fraudulent companies and unviable concerns from entering the market," said Mr Girish Nadkarni, COO - Investment Banking & Institutional Equity, IL&FS Investsmart Ltd.

Among several aspects and antecedents looked into, merchant bankers analyse the quality of management of the company and viability of the offering to investors. Quality offerings

Stringent quality standards have forced lead managers to focus on issues falling in profitable and promising sectors. "We are focusing on IPOs from companies operating in emerging sectors like food processing, agriculture, textiles and tourism and hospitality. With a focused approach, we can come out with quality offerings that will be a good investment option for investors," said Mr Ananta P. Sarma, Executive Vice-President & Head - Investment Banking, IDBI Capital Market Services Ltd. Lead managers have also begun focusing on sectors such as construction, auto and auto-ancillary, real estate development and retailing. Larger issue size

As part of its move to add more value to public offerings, several book runners have decided to only manage issues having a considerable size. Many have decided to focus only on issues of mid-cap size companies. A major reason for this shift in strategy is the fact that only large-size issues impress institutional buyers. "Major lead managers have graduated from small offerings to large-sized IPOs. The benchmark now is anything between Rs 100 crore and Rs 150 crore. These limits will keep changing with markets and the economy growing bigger and better," said Mr B. Madhuprasad, Vice-Chairman, Keynote Corporate Service Ltd. Consequent to this, merchant bankers foresee an increase in the scope of private equity funds and VC funds. These funds are expected to hold larger stakes in the small-cap

http://www.blonnet.com/2006/01/25/stories/2006012500980600.htm Banking - RBI & Other Central Banks Markets - IPOs Industry & Economy - Economic Offences

Banks' role in IPO scam — Risk control systems under RBI scanner

Our Bureau Mumbai , Jan. 24 THE Reserve Bank of India said it would assess whether banks were meeting the Know Your Customer norms and other guidelines related to opening of accounts, in the light of the recent IPO scam. RBI would also examine the risk and control systems in the seven banks fined by it to find out whether their managements had overlooked the irregularities, said the RBI Governor, Dr Y.V. Reddy. Addressing a press conference after announcing the Third Quarter of Annual Statement of Monetary Policy for 2005-06, Dr Reddy said it was not a systemic problem, but failure within the banks' internal inspection. "We tell banks to have their systems and control in place and don't breathe down their backs," said Dr Reddy. RBI will also conduct an inquiry to see if any irregularity was reported and if RBI officials overlooked them. This would also warrant appropriate action, Dr Reddy said. On January 23, RBI fined seven banks for their role in the recent IPO scam. It also issued a directive stating that an account payee cheque should go only to the account of the person named in the cheque and not any other. This move was prompted by the modus operandi used by those involved in the scam. The banks had violated norms on KYC, breached prudent banking practices and facilitated misuse of IPO finance to ineligible borrowers, said RBI in its press release. Dr Reddy said, "Instead of using account payee cheques under convenience for contingencies, banks misused them." After being informed of the irregularity by SEBI, RBI sent inspection teams to these banks. The inspection revealed that 14 branches were involved in the scam, Dr Reddy said. RBI will also conduct an enquiry to see if any of these violations were brought to their notice, Dr Reddy said. As per the law, RBI is not permitted to impose penalty exceeding Rs 5 lakh per violation, Dr Reddy said. [email protected]

MONDAY MUSINGS 20.07.2009

We may increase India investment allocation Nomura wants to establish itself as a trustworthy financial institution covering investment banking, equities, fixed income and asset management, says deputy president and COO Takumi Shibata UNTIL recently, no Japanese financial institution was able to make a dent in the Indian markets despite several attempts over the years. That changed after Nomura acquired Lehman Brothers’ business in Asia, the Middle East and Europe in 2008. The company recently picked up a 35% stake in LIC Mutual Fund — the seventh-largest MF in India. Takumi Shibata, deputy president and COO of Nomura Holdings and Nomura Securities, who played a key role in the Lehman acquisition, gives George Smith Alexander the lowdown on Nomura’s plans to step up BPO operations in the country and increase allocations of its funds for investments into the equities market.

Govt puts contingency plans in place THE canals are running low, forcing farmers like Mr Sandhu to turn to the tube wells, for which power is supplied free of cost by the Punjab government. Only, the state just doesn’t have any more power to distribute, free or paid for. One of the ‘Temples of Modern India’, the Bhakra Beas Dam, first rang the alarm bells by issuing a shut-down warning as June trickled away in drizzles. Extreme temperatures brought down water levels in the dam by 90 feet, dropping by a foot a day and forcing the state government to undertake emergency measures: a blanket ban on air-conditioning in all government offices, including the chief minister’s. “I was never really bothered about the monsoon. But this year, I have spent more than Rs 50,000 on diesel alone to ensure water for the paddy crop,” Mr Sandhu says. He is the first link in a chain that is threatening to dry up India’s hopes of seeing the green shoots of economic recovery grow into a GDP expansion of over 7% this fiscal.

Service tax to add to woes of coastal and inland waterways

20.07.2009 OUR SHIPPING BUREAU MUMBAI 19 JULY

If one go by the demands placed before the government by the shipping industry, which is trying to stay afloat in the financial downturn plaguing sea trade across the world, the year's Budget could be said to have turned a deaf ear towards Indian shipowners and shipping industry. But, according to industry circles, what was least expected from the Budget was inclusion of coastal shipping and inland waterways under service tax net, as the segments were witnessing promising developments under the tutelage of earlier shipping ministry. The fledging sector has been making efforts to align itself with mainstream developments, thanks to the coming in of many state-level ports and enabling legislations like riversea regulation from the directorate general of shipping. In such a context, coastal and inland waterways operators feel that the new tax could prove fatal to many of their colleagues.

21.07.2009

FIIs may get more play in govt paper G-Sec Investment Cap May Be Raised As Govt Tries To Ensure Its Borrowings Don’t Dry Up Liquidity MK Venu & Rohini Singh ET NOW

THE finance ministry and Reserve Bank of India (RBI) are readying measures to improve liquidity in the system and mute talk of the Centre’s massive borrowing programme inflating government bond yields. As the first step, the investment cap in government securities (G-Secs) by foreign portfolio investors, or FIIs, is likely to be raised, an official privy to the move said. The current limit for FII investment in government securities is $6.5 billion while for corporate debt, it is $15 billion. FIIs are close to exhausting their investment limits in G-Secs while there is plenty of room for such inflows in corporate debt. “Once global debt flows resume, global investors may find government paper attractive. The overall investment ceiling in G-Secs will be relaxed after the current limit is breached,” said the official, who asked not to be named.

NSE weighs listing global ETFs on itself Deeptha Rajkumar MUMBAI

THE National Stock Exchange (NSE) is toying with the idea of listing global exchange traded funds (ETFs) on the bourse. Market watchers see this move as part of the exchange’s efforts to increase its bouquet of products. Global ETFs are expected to be favoured by high net worth individuals and wealth management firms, looking for portfolio diversification. When contacted, NSE officials refused to comment. To begin with, the exchange may allow listing of ETFs of global asset management companies, which also have operations in India, said a person familiar with the development. For instance, a fund like BlackRock, which manages an India ETF listed on NYSE, could (hypothetically) have a US ETF listed on NSE. This way an Indian investor could take exposure to US markets, without investing directly in that market.

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21.07.2009

Bond yields rise, Re gains 54 ps Our Bureau MUMBAI

GOVERNMENT bond yields rose on Monday, ahead of Friday’s Rs 12,000crore bond auction. The benchmark 10-year yield rose eight basis points from its previous close to trade at 6.91%, as traders sold securities to free up cash for the next auction. When yields rise, prices fall. Last week, RBI announced that out of the next 10 auctions, seven will raise Rs 12,000 crore for the government while there will be three other auctions of Rs 11,000 crore, Rs 8,000 crore and Rs 7,000 crore each. This week, the government will sell securities worth Rs 12,000 crore. “Despite the borrowing programme being 1.5 times that of last year and 3 times of FY08, we expect yields to remain range-bound with the 10-year benchmark likely to be capped at 7.5%,” said

22.07.09

Bulls take a break, Sensex sheds 129 in choppy trade Our Bureau MUMBAI

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22.07.2009 EQUITY benchmarks ended weak on Tuesday in choppy trade, mirroring the uncertain trend in overseas markets. Concerns over the scanty rainfall across the country, which will delay the revival of economic growth, also resulted in indices falling the most in the past six sessions. BSE’s 30-share Sensex closed at 15062.49, down 128.52 points, or 0.85%. NSE’s 50-share Nifty ended at 4469.10, down 33.15 points, or 0.74%. The trend in the broader market was divided, with losers edging past gainers 1343: 1289 on BSE. US markets opened higher, but gains were capped, even as America’s Federal Reserve chairman Ben Bernanke said the outlook for the world’s largest economy appears to be improving. He also signalled that interest rates would be kept intact till the economic situation improved

Sebi to do away with no-delivery period 22.07.2009 Our Bureau MUMBAI

MARKET regulator Sebi has decided to fully do away with the system of no-delivery period — the duration prior to the record date, or book closure, when delivery of listed shares does not happen — for all corporate actions. This is following the complete shift in ownership of shares from physical to the demat form. In the no-delivery period, shares can be traded, but are not transferred from one holder to another. The first day of the no-delivery period is the ex-date and the buyer of the shares on or after the ex-date will not be eligible for benefits of the corporate action such as bonus, rights shares and dividend. The trades are settled only after this period. This system was relevant when delivery of shares was done in a physical format, through certificates. The share certificates had to be delivered to the registrar of companies before the book closure so that investors get the bonus, rights shares or dividend. Now, with shares being held in the demat format, the concept of no-delivery period has lost significance.

22.07.09

Power cos draw up money raising plans Adani Power Places 36 M Shares To Raise Rs 375 Cr Ahead Of IPO, NHPC To Raise Rs 1,680 Cr Apurv Gupta MUMBAI

ENCOURAGED by the current stability in stock market and the opportunities that an electricity-starved nation presents, power producers are lining up plans to raise thousands of crores through share issues over the next couple of months. Adani Power has completed placing with institutional investors some 36 million shares to raise Rs 375 crore ahead of an initial public offering (IPO) of 300 million shares while NHPC said last week that it would be raising Rs 1,680 crore in an IPO likely next month. Indiabulls Power, Sterlite Energy and JSW Energy are among those looking to sell shares through IPOs and pre-IPO placements, said bankers aware of these companies’ plans.

Rights issue market gets back its rhythm 23.07.09

Merchant Bankers Hope Large-Sized Offers May Soon Hit The Market To Take Advantage Of Improved Sentiment Vijay Gurav MUMBAI

THE rights issue market is showing early signs of revival with a few recent offers getting fully subscribed. Merchant bankers say this response may encourage many other companies to raise funds through the rights issue route. Many companies had deferred their fund raising plans, following the failure of some major rights issues, amid last year’s stock market turmoil

MFs give arbitrage funds a break, stop fresh inflows 23.07.09

Inadequate Arbitrage Opportunities Trigger Move Nishanth Vasudevan MUMBAI

AT A time when domestic mutual funds continue to aggressively scramble for more money to boost their asset base, they have made an exception for one category — arbitrage funds. Several top arbitrage schemes of mutual funds have stopped accepting fresh money from investors, as lack of sufficient arbitrage opportunities between the cash and futures markets have made it tedious for them to generate competitive returns to the existing unitholders itself.

23.07.09

Bond yields dip, Re falls to 48.51

Our Bureau MUMBAI

GOVERNMENT bond yields ended lower ahead of a buyback of securities by RBI on Thursday, even as volumes rose. Traders are taking fresh positions after two straight days of profit booking. The government will buy bonds up to Rs 6,000 crore from traders on Thursday. 24.07.09

Dividend-paying cos seen scoring over rest of the pack Cos With Consistent Payout History Offer Better Returns In Past 3 Yrs Nishanth Vasudevan MUMBAI

CONVENTIONAL wisdom says stocks of companies with consistent dividend-paying record are better investments over the long run. While annual stock movements of dividend-paying companies from 1996 to 2005 have contradicted such theories, the last three years have seen these shares perform better or losing lesser, albeit marginally, than those which do not, according to an ICICI Securities study, which picked stocks on the BSE-100 Index for the analysis.

24.07.09

Crisil upgrades 8 PSBs as govt promises funds Our Bureau MUMBAI

RATING agency Crisil has upgraded eight public sector banks, following the government’s intent to retain a majority stake in the lenders and ensure they remain well capitalised. Following the upgrades, these banks will be in a position to negotiate better rates on the capital they raise through bonds. Bank of India and Union Bank of India have now become AAA (triple A) rated companies upgraded from AA+ earlier. Triple A is the highest level of credit rating assigned by Crisil. Other two, Canara Bank and Corporation Bank, which already enjoyed a triple A rating, have had their outlook revised to stable from negative. In addition to this six more banks, Allahabad Bank, Bank of Maharashtra, Dena Bank, IDBI Bank, Punjab & Sind and UCO Bank have had their ratings upgraded or their rating outlook revised for the better.

24.07.09

Bonds end flat, Re strengthens to 48.47 Our Bureau MUMBAI

GOVERNMENT bonds ended flat after RBI bought back lesser securities than indicated earlier. However, the yields, at which securities were bought back, were in line with market expectations. All eyes are now on RBI’s credit policy review meeting next week where the central bank is expected to keep rates steady, but lower its credit and growth targets for banks. RBI on Thursday bought back only Rs 3,600 crore worth of bonds, against Rs 6,000 crore it said it was to buy originally. It said it had bought the five-year benchmark bond at 6.62% and papers maturing in 2020 and 2032 at 7.02% and 7.80%, respectively. Earlier in the session, yields were trading lower with traders taking fresh positions after a few days of profit booking. But yields rose after auction results came in.