Tag: Kotak Securities.

IPO financing costs double as 5 IPOs set to hit market, raise Rs 31,000 crore, BFSI News, ET BFSI

Personal Finance

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After the Reserve Bank of India capped the borrowing from NBFCs for IPO subscription to Rs 1 crore per borrower, investors have been hit by doubling interest rates in the last two months.

Funding rates have shot up as many large-sized IPOs are scheduled within a short span of time. Interest rates have risen to 12-13 per cent in the last two months as liquidity has tightened in the system. Liquidity is further seen going down in the next couple of weeks and funding rates may rise further. With five IPOs scheduled to hit the market by November 3 and aiming to raise Rs 31,000 crore, the demand for funds is bound to go up amid a liquidity crunch.

Five IPOs

Five companies are looking to mop up over Rs 31,000 crore cumulatively between October 28 and November 10. Industry players expect Nykaa to be the biggest draw. Its IPO is expected to generate bids between Rs 80,000 crore and Rs 90,000 crore in the HNI category.

NBFCs issue seven-day commercial papers (CPs) to meet this funding requirement. The CPs are issued at 5.5 to 6.5 per cent. Industry players said the huge borrowing requirement had also led to a 100-200 basis points increase in CP rates.

Bajaj Finance, Kotak Securities, IIFL, JM Financial, and Motilal Oswal are among NBFCs that are looking to borrow or have borrowed from the CP market to lend to HNIs to apply for IPOs of Nykaa and others.

Rising costs

With the increase in funding rates, the cost per share has gone up drastically for wealthy investors.

For instance, at 7% for seven days, the cost for one share of Nykaa comes at around Rs 151 for 100 times HNI portion subscription. At 11%, the cost will go up

to Rs 237 per share, and at 13%, it will be Rs 280 per share. This means investors will make money only if the Nykaa lists with a premium of more than Rs 280 per share if one borrows at 13%.

The IPOs of Nykaa and PB Fintech are currently traded at a grey market premium of Rs 670 and Rs 220 apiece, respectively.

Raising funds

While the Nykaa IPO will hit the market on Thursday to raise Rs 5,352 crore, the PB Fintech IPO will open for subscription on Monday, November 1, to raise

Rs 5,710 crore. There is demand for nearly Rs 1 lakh crore from high-net worth investors for these two IPOs against the availability of Rs 50,000-60,000 crore at one time

NBFCs are readying a war chest of close to Rs 2 lakh crore to lend to high net worth individuals (HNIs) for their IPO bets.



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Kotak Securities launches start-up investment and engagement programme

Banking & Finance

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Kotak Securities on Tuesday announced the launch of its maiden Start-up Investment and Engagement Programme.

“Through this programme Kotak Securities will incubate and invest in innovative fintech and technology start-up companies,” it said in a statement.

It has set up an exclusive Corporate Development Department (CDD) for the initiative, with an initial investment corpus of Rs 50 crore.

Kotak Securities will launch incubation/accelerator programmes, hackathons, networking events, pitching sessions and demo day programmes for early stage start-ups in-house as well as with other incubator/accelerator groups.

“We strongly believe technology innovation will gauge the competitiveness of a broking firm; however, developing technology involves money and time. It is with this purpose that we have launched our investment and engagement programme, where we will partner and pick minority stake in fintech companies,” said Jaideep Hansraj, Managing Director and CEO, Kotak Securities.

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Rate of decline in fresh lending and deposit rates slows down: Report

Banking & Finance

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The rate of decline in fresh lending and deposit rates has started to slow down, according to an analysis of the latest Reserve Bank of India (RBI) data by Kotak Securities.

Deposits rates were flat month-on-month (mom) at about 5.6 per cent in November 2020. Fresh lending rates were down about 5 basis points (bps) mom to about 8.3 per cent in the month, the stock broking firm said in a report.

Referring to the spread between average lending rate on outstanding and fresh loans staying around110 bps, the report said: “High spreads do not augur well as it still shows reluctance to lend, in our view.” One basis point is equal to one-hundredth of a percentage point. “While the overall lending rates have declined when we look at the headline rates, the transmission is probably slower when we look at various products or risk segments.”

“In a relatively low growth and heightened risk environment, especially after Covid, we note that the spreads have continued to remain high,”according to authors MB Mahesh, Nischint Chawathe, Abhijeet Sakhare, Ashlesh Sonje and Dipanjan Ghosh.

The spread over G-Sec (government security) with deposits and loan rates has widened, implying banks are seeing lower spreads on investments and better spreads on loan yields, they added. “While we are witnessing some positive trends on recovery in loan enquiries, we still believe that there is still some time before it reflects in loan growth,” the authors opined.

Term deposit rates flat

The report observed that weighted average TD (term deposit) rates were flat mom, for both private and PSU (public sector undertaking) banks. Private and PSU banks have reduced their TD rates by about 110 bps and about 90 bps respectively over the past twelve months.

Wholesale deposit cost (as measured by Certificate of Deposit rates) has seen a much sharper decline of about 320 bps in FY2020, followed by a further decline of about 180 bps in YTD (year-to-date)FY2021, the report noted.

“We have started to see banks, especially private banks, cutting headline TD rates in the past few quarters. The gap between repo and 1-year TD rate for SBI (State Bank of India) has been flat about 90 bps after declining from peak levels of about 130 bps,” the authors said.

Fresh lending rates down marginally

The report observed that private sector banks saw a decline of about 10 bps mom in lending rates on fresh loans to about 8.9 per cent, while PSU banks showed about 10 bps decline.

The authors assessed that the gap between fresh lending rates of private and PSU banks now stands around the 100 bps average level seen over the past twelve months.

Lending rates on outstanding loans were marginally down mom to about 9.4 per cent in November 2020, having declined about 80 bps since November 2019, they added.

“Banks have been cutting their MCLR (marginal cost of funds based lending rate) over the past few months. Private banks and PSU banks have cut their MCLR by an average of about 90-100 bps in the past 12 months,” the report said.

The gap between outstanding and fresh lending rates has been in the range of 110-140 bps for the past nine months.

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