Companies raise capital on fears of third wave

Several corporates, especially in sectors severely hit by the pandemic, are raising additional capital to bolster their balance sheets and prepare for a potential third wave of the pandemic that could cause further disruptions to business.

While the trend is more visible in consumer-facing sectors such as civil aviation, tourism, retail and automobiles, experts say that more companies are likely to initiate fundraising efforts.

InterGlobe Aviation Ltd, which operates IndiGo, approved a plan in May to raise 3,000 crore by selling shares to institutional investors. India’s largest airline plans to raise an additional 4,500 crore by securing credit lines from lenders and entering into sale and leaseback (SLB) pacts with aircraft lessors to gather funds as it expects revenues to be hit and cash burn to continue in the June quarter.

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Building reserves

IndiGo’s consolidated loss widened to 1,147.16 crore in the March quarter from 871 crore a year ago. Net debt swelled 31.4% from a year ago to 29,859.7 crore as of March-end, while cash balance fell 8.9% to 18,568.5 crore in the same period.

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IndiGo’s chief executive, Ronojoy Dutta, said the main purpose of the fundraising is contingency planning in the event of another covid wave. “We are planning a QIP as a standby. We have a cash threshold in mind that we don’t want to fall below,” Dutta said in an interview on Wednesday.

“Even in the most pessimistic of scenarios, we will not cross the cash threshold. The QIP is not for working capital but more for disaster management if such a scenario does occur,” he added.

Meanwhile, Wadia Group-controlled Go Airlines (India) Ltd, which runs the GoFirst budget airline, began the process of becoming the fourth listed carrier in India as it filed a draft prospectus with the market regulator for an initial public offering (IPO) to raise as much as 3,600 crore. The share sale is an attempt by the promoters to raise funds to weather the pandemic. “The IPO will place us perfectly when the market rebounds,” the airline’s vice-president, Ben Baldanza, said in an interview last month.

Several automakers who faced major business disruptions due to the last two waves of the pandemic have been readying contingency plans to deal with any future emergency. The companies have also asked dealers and parts suppliers to run operations on a tighter budget and reduce variable costs. As a precautionary step, most automakers are also asking vendors to increase the inventory of parts in case of lockdowns in the future.

“After the last lockdown, demand came back swiftly, and the recovery sustained for about six months till March 2021,” said a senior auto industry official, who spoke on condition of anonymity. “So, financially, most auto companies are better off as they made profits in Q3-Q4 of FY21, but the need of the hour is to conserve capital,” the official said.

Meanwhile, the movie exhibition business, one of the sectors worst hit by the pandemic, has seen top multiplex chain operators raise capital for working-capital needs and to repay loans. Earlier this week, Inox Leisure Ltd, the second-biggest multiplex chain operator, launched a 300 crore share sale to strengthen its balance sheet.

“Clearly, companies are looking to raise capital, given the uncertain environment around the next wave and impact on cash flows; so they would rather raise equity than debt, even though debt is easily available. Also, stock market valuations are very attractive currently for issuers, and investors, too, are keen to lap up quality companies. So, we see a very strong pipeline of fundraising activity in the next few months,” said Ajay Garg, founder of Equirus Capital, a Mumbai based investment bank.

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