Business & Investment

HNI’s IPO Appetite Regulatory Eyes on NBFC Financing

Mumbai: Regulators are paying attention to the flood of shadow bank lending to individuals looking to take advantage of the boom market for initial public offerings (IPO), People with knowledge of the problem said, keeping in mind the potential systemic risk. RBI draft paper on the proposed regulatory framework for non-bank financial companiesNBFC) Proposed a funding limit of Rs 1 per individual for Shadowbank, released last Friday. Banks can lend Rs 100,000 per person to raise IPO funding.

Riding the wave of major markets, NBFCs such as Bajaj Finance, Aditya Birla Finance, Motilal Oswal, IIFL Wealth, Infini Finance, JM Financial and Edelweiss are funding. wealthy class Through short-term loans, sometimes only 5-7 days.

From Burger King to Happy Mind, Grand Pharma to Root Mobile, and even last week’s Indigo Paint, wealthy investors are jumping at the opportunity to rake it up in a short amount of time. According to some market participants, its debut bump has led to anthropogenic asset inflation and price distortions.

The risk is the lukewarm debut of SBI Card and others, which saw a listing discount of 13% above the issue price.

Arun Kejriwal of KRIS Research and Advisory said: “IPO financing creates an unhealthy market and distorts the price of IPOs on the listing day, as most of the financing subscribers sell on the first day.

Generally, to fund clients, NBFC raises short-term funding at 4-5% through commercial paper and then finances at 6.5-8%. In the last 6 months, the top 10 financial companies, excluding their own funds and other sources of funding, have held IPO funds for 7-10 days and have raised approximately Rs. 1.8 through commercial paper.

“This is mutually beneficial for everyone,” said a major NBFC executive. The funds will be raised at an annual maturity yield of 3.2% to 6.25%. “HNI is making money from its listing premium, and the profits from recent issuance are daunting. If the price is good, we won’t look back.”

Risk factor

Mumbai-based analysts have issued a warning with major foreign institutional investors.

“What if there was a Black Swan event between the funding and the listing date? Who buys these CPs-mostly mutual funds. Do you remember what happened during IL & FS?” He said. “In addition, where is the actual price discovery on the list when the generated demand is primarily artificial?”

Shadowbank executives and traders estimate that NBFC has lent approximately Rs. 40,000 to the HNWIs (HNI) for Mrs. Bector Foods and the Gland Pharma IPO. For example, a South Mumbai businessman received a call from Wealth Manager about Burger King’s IPO. It was a huge success with over 300 oversubscriptions. NBFC, which managed part of his investment portfolio, was pleased to offer a loan of 49 rupees at 7.5% if he raised only 50 rupees.

According to data from an ICRA-rated commercial paper, Mrs Bector Food IPO raised around Rs. 35,200 and Burger King IPO raised around Rs. 26,000. Chemcon Specialty Chemicals and Computer Age Management Services raised more than Rs 37,000. Similarly, Happiest Minds Technologies raised approximately Rs 24,700. Indeed, these numbers are for CP only as assessed by ICRA.

Bull market

Shankar Vailaya, CEO of Sharekhan BNP Paribas Financial Services, said:

NBFC meets the demands that banks do not meet.

Group CFO Shalibhadra Shah said: “The IPO financing market will be very vibrant in 2020, supported by the growing interest of HNI investors in pursuit of public offerings on IPOs.” Motilal Oswal Financial Services. “Due to regulatory restrictions. This area is dominated by the NBFC division of the capital markets and wealth management business as banks are not active in this segment. ”

The HNI portion of Mrs Bector’s Food was subscribed 621 times, generating demand worth Rs 50,645. Financing costs for Mrs Bectors Food ranged from Rs 212-217 per share. The problem that the price was listed at 288 rupees and 501 rupees and ended at 595 rupees on the first day was a profit of over 300 rupees. Even considering the weighted average, the profit was in the range of 285 rupees. -290. (See chart)

Financiers claim that the risk is limited because the lender has a margin on the stock. In general, the higher the funding cost, the less likely you are to make a profit on an IPO after considering all costs. Investors are required to pay interest on the entire amount borrowed, not on the amount actually allocated. As a result, the borrower must be more interested in idle funds, and higher oversubscription works for the borrower.

HNI’s IPO Appetite Regulatory Eyes on NBFC Financing HNI’s IPO Appetite Regulatory Eyes on NBFC Financing

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