Indian cos' GDR plans stalled by hedge funds, Libyan crisis

BANGALORE & MUMBAI: Indian companies' plans to raise more than a billion dollars by selling Global Depositary Receipts, or GDRs, has been stalled due to overseas investors pulling out funds from emerging markets and some prominent ones, such as Jim Rogers , even shorting these stocks.

Kingfisher Airlines, Empee Sugar, Jindal Stainless and Orbit Corporation are among the companies that have put on hold plans to raise funds overseas.

Soaring prices of crude oil and commodities could take the sheen out of emerging markets like India as they battle inflation with higher interest, which cuts corporate earnings.

"Short positions by hedge funds indicate there are still some downward corrections likely in emerging markets. Potential investors for Indian GDRs would now stay away from upcoming issues," said Gautam Chand of Instanex Capital , which tracks Indian GDRs.

After peaking at 1,600 crore in August 2009, capital raised by Indian corporates through GDRs slumped to 110 crore in November 2010.

Overseas investors have turned jittery after the recent Libyan crisis, coupled with a substantial decline in local shares.

As a result, Kingfisher Airlines' $250-million GDR issue has again been delayed, said a UB group official. Roadshows had closed last month and arrangers were working on the pricing to float the issue this month.

A source familiar with the group said the company had targeted a minimum conversion price of 80 per share. Last week, the stock tanked to 38. On Wednesday, it rose 0.7% to 41.

A Kingfisher Airlines spokesperson declined comment.

"GDRs are an absolute no these days,'' says Raj Bhatt, vice-chairman and chief executive of Elara Capital . "Both the local market correction and Arab crisis have impacted sentiments in both the local and international markets, making it tough for promoters to raise cash from the international markets."

Now, overseas investors are finding only convertible bonds floated by local infrastructure companies or special purpose vehicles interesting, he said.

Chennai-based Empee Sugar had plans to raise 350 crore to part-finance its distillery unit expansion. A company official said it's going slow on the plan due to the adverse market conditions.

Instability in the Middle East could prolong the bearish trend, making it tough for fund raising plans abroad.

Investors pulled out of emerging-market funds for the sixth week with redemptions of $2.5 billion in the week ended March 2. It may rise with Chinese premier Wen Jiabo committing to tame inflation to prevent social unrest.

Pujit Aggarwal, managing director of Orbit Corporation, said it would be some time before the company approaches global investors for equity funds.

A senior banker advising at least two Indian companies on their proposed GDRs said such issuances are unlikely to "go through" in the near-term. "Even QIPs (local share sale to institutional investors) are out of the question," he said.

Dhananjay Sinha, senior VP, strategist & economist, Centrum Broking, said the downtrend in GDRs seems to have a direct co-relation with foreign direct investment (FDI) inflows. He noted that FDI inflows have been declining since last year; capital raised through GDRs/ADRs also had been declining since mid-2009.