Startup funding: Money will not dry up, will look for quality

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According to Indian Angel Network president Padmaja Ruparel, there has been an increase of 20% in the number of deals but the overall amount has gone up by 12%

While there are concerns about money drying up for start-ups in the country this year, venture capitalists say there is more money coming into the country but it will find its way only into quality ventures.

As a result, venture capitalists are going into a lot more details than before. So no more raising of funds and picking up cheques in coffee shops. And this is not bad, they reckon, as many people were starting up ventures just because capital was easily available.

Indian Angel Network president Padmaja Ruparel said that he has seen an increase of  20% in the number of deals but the overall amount has gone up by 12%.

“There is a huge interest among the investor groups in a variety of sectors. But there is much more diligence on how much money is required,” said Ruparel. There will be much deeper, sharper diligence and unit economics would be in focus, she said at a panel discussion on Raising and Deploying Funds in a Changed World at TieCon Pune, 2016.

Amid this talk of gloom and doom, people have raised huge funds but then they will be deployed carefully, said Sanjay Nath, co-founder Blume Ventures. “There is no rush to deploy funds and more time will be taken on deals,” he said adding, “good companies and quality founders are raising larger rounds of money.”

SAIF Partners MD & Advisor Alok Goel said around $2.5 billion would be deployed in two to three years and all this talk of money not being there was not true. “The most risk averse guys were becoming entrepreneurs just because capital was available and this was a risk. The craziness of the last 15 months of funding was worrying,” Goel said.

Remaining bullish about 2016, he said the consumer pain points were still there and those who could cut through the clutter would get funding.

Goel said the VC industry had seen three distinct phases in the country – prior to 2013 it was all about replicating successfully models of the West here; between 2013 an 2015 ideas were being copied here before even being tested and tried in the US, which doubled the risk in the business and was not going to work. The new phase is about looking at India specific problems and solving them instead, he said.

Qualcom Ventures VP Karthee Madasamy said such ups and downs were part of the cycle and they remain unfazed. “We have done six plus follow-on and new deals last year. We will do the same this year and have no plans to change that,” said Madasamy.

He expects India to do well in the area of hardware in the next few years with lot of start-ups coming up in India in this sector.

Source: http://www.financialexpress.com/article/industry/companies/deeper-due-diligence-precedes-start-up-funding/239822/

Lending for small companies is a $300 million business

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While bigger SME lending players like Lending Kart and Capital Float aim to close their next funding rounds, a slew of smaller players have emerged in the last year viewing the space as a segment where at least 10 strong players can coexist.

Amongst the new players, Puneet Dalmia-backed CoinTribe, which was launched in February, uses a proprietary algorithm to link up multiple data sources ranging from the credit bureau to social media determining the credit worthiness of an SME within minutes. The startup has tied up with private sector banks that use their platforms to process SME loans.

“Our ticket size for loans range between Rs 30,000 to Rs 20 lakh. We offer an interest rate of 13-18% and receive upto 30 applications on a daily basis,” said Amit Sachdev, cofounder at CoinTribe. The fintech player has an acceptance rate ranging between 25 and 30% for all of its applicants.

Tracxn Labs-backed LoanZen has not tied up with any banking partners yet and focuses on disbursing its loans from the capital raised in its first round. The startup, which claims that it receives up to 20 applications daily, offers loans up to Rs 10 lakh at an interest rate, ranging between 18 to 24%.

“We aim to complete the credit risk evaluation in a matter of minutes and disburse loans within 3 days. Since sectors like kirana stores and budget hotels cannot avail of loans from traditional banks, there is a lot of room for several players to emerge in this space,” said Madhu Sudhan, cofounder of LoanZen. The startup uses an artificial intelligence-based system to carry out the credit risk evaluation and looks at parameters like bank, taxation and accounting data. LoanZen claims to have disseminated loans up to Rs 50 lakh in the month of March.

According to Gaurav Hinduja, the co-founder of Capital Float, SME lending is a very deep vertical in India, despite banks and NBFC’s lending approximately $150 billion to this sector.

The unmet need is still over $300 billion and at least 20% of this can be tapped by new age tech lenders.

“It’s definitely not a winner take all market and we will see several startups attacking different niches in the market. We are likely to see at least 10x growth in fintech alternate lenders. There will also be a growing number of interesting partnerships between institutions and new fin tech lenders,” added Hinduja. Abhishek Goyal, the founder of Tracxn, believes that despite several players entering the SME lending sector, few will survive the current funding climate.

Source: http://economictimes.indiatimes.com/articleshow/51818398.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

Fund raising via rights issue hits 5-yr high of Rs 9,239-cr

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Indian firms raised a staggering Rs 9,239 crore through rights issue in the past fiscal, making it the highest fund mobilisation in five years.

The huge fund-raising was primarily driven by Tata Motors’ rights issue.

Most of the funds were mopped-up for expansion, repayment of debt and working capital requirements.

In the rights issue mode, shares are issued to existing investors at a pre-determined price, normally at a discount, in proportion to their holdings.

Companies garnered Rs 9,239 crore in the past fiscal, which was 37 per cent higher than Rs 6,750 crore raised in the preceding financial year, according to an analysis.

This was the highest fund-raising since 2010-11 , when firms had raked in Rs 9,594 crore.

In terms of number, the past fiscal witnessed 12 companies using the rights route as compared to 17 firms in 2014-15.

The largest rights issue during the period was from Tata Motors which alone raked in Rs 7,498 crore.

It was followed by IL&FS Transportation (Rs 740 crore), Sun Pharma Advanced (Rs 250 crore) and Fortune Financial Services (Rs 204 crore).

Source: http://www.business-standard.com/article/pti-stories/fund-raising-via-rights-issue-hits-5-yr-high-of-rs-9-239-cr-116040800804_1.html

Companies raise Rs 48,952 crore via various instruments in FY16

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Despite stock market volatility and a negative return of 9.4 per cent from the Sensex, 2015-16 saw good participation in new equity issuances and companies raised a total of Rs 48,952 crore through various instruments, says a report.

“In financial year 2015-16, a total of Rs 48,952 crore was raised through various equity market instruments including initial public offers, qualified institutional placements, follow-on public offers and offers-for-sale,” a report by Centrum Wealth Research said today.

This was, however, lower than Rs 58,801 crore raised in fiscal 2015.

IPOs garnered Rs 14,772 crore in fiscal 2016, a massive leap from Rs 2,769 crore raised in the previous fiscal.

Money raised through QIPs stood at Rs 14,438 crore, lower than Rs 29,102 crore in the last fiscal, but rights issues raised Rs 8,785 crore, a 30 per cent jump from Rs 6,750 crore in FY15.

Despite the turmoil, the BSE IPO index performed relatively better than the benchmark Sensex. In 2015-16 fiscal, the Sensex shed more than 9 per cent, while the BSE IPO index was down only 1.8 per cent.

“While the year was good in terms of quantum of money raised and out performance of the IPO index, it turned out to be a mixed bag in terms of individual stock performances,” the report titled ‘Performance of New Equity Issues in FY16’ said.

Shree Pushkar Chemicals was the biggest gainer with an over 100 per cent return from its offer price, followed by VRL Logistics which gained 81 per cent.

Dr Path Labs, Syngene and Manpasand Beverages were all up 45-65 per cent each. Amongst the key drags were MEP Infra, UFO Moviez, Quick Heal and Coffee Day, that were down 30-40 per cent each.

“Even though new equity issuances witnessed robust participation in FY16, the Indian IPO market had to go through a slump at the start of 2016. This was in line with global IPO activity, which saw a sharp drop in Q1, 2016 led by worldwide economic slowdown,” the report added.

On the future outlook, the report co-authored by Sweta Chawla and Siddhartha Khemka said, “Central banks across the world are likely to maintain an accommodative monetary policy through the year and that should help check global market volatility. Earnings are expected to show an improvement in the second half of the year.

“A lot will depend on monsoon though. An overall positive market sentiment will keep the interest alive in primary market issuances and we could see lot more money raising.”

Source: http://economictimes.indiatimes.com/articleshow/51648033.cms

How FIIs outsmart domestic investors

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Domestic investors have a lot to learn from their foreign institutional counterparts, who seem to have mastered the art of timing, raking in the moolah in the midst of market volatility.

On the other hand, domestic investors mostly buy when foreign institutional investors (FIIs) are booking profits at higher valuations, limiting their own upside.

For example, in the current rally, most of the FII purchases were in 2012 and the first half of 2013, when the price-to-earnings (PE) multiple of BSE 500 companies had hit a multi-year low.

In contrast, most of the accumulation by domestic investors, through mutual funds and insurance companies, occurred in 2015 when BSE 500 companies were trading at a multi-year PE high. FIIs accumulated India’s top-listed companies at an average valuation of around 16 times and offloaded it to domestic investors at around 24 times their value (see chart).


In all, FIIs’ stake in BSE 500 companies was up 550 basis points between March 2012 and March 2015, at an average PE of around 16 times the companies’ combined trailing 12-month net profits. FIIs stake peaked in the March 2015 quarter, coinciding with the peak in valuations of BSE 500 companies. One basis point is one-hundredth of a per cent.

The analysis is based on the end-of-quarter shareholding pattern, market capitalisation and quarterly net profit of BSE 500 companies, beginning the March 2006 quarter. The sample is based on the data for 358 companies where the data is comparable across the period.

Analysts attribute this to the steady nature of fund flows FIIs receive, while domestic institutional investors are at the mercy of inflows from retail investors, which tend to take place late in the cycle.

“When FIIs were buying in 2012-13, insurance companies and mutual funds were still facing redemption, forcing fund managers to sell their holdings even when the valuations were low. Inflows turned positive only in late 2014 and 2015, when domestic retail investors were convinced about the rally,” said Dhananjay Sinha, head, institutional equities, Emkay Global Financial Services.

In comparison, FIIs receive a significant portion of their funds from large institutional investors in Europe and the US, whose investment sentiment remains steady over a long period.

Others also point to differences in the investing styles of FIIs and their domestic counterparts.

“FII investments are largely fundamental and research-driven compared to domestic investors, most of whom tend to get swayed by market sentiment and herd mentality,” said G Chokkalingam, the founder and chief executive officer of Equinomics Research & Advisory.

This explains why a majority of domestic investors fail to make money in the market, he added.

A similar trend was visible in the rally before the global financial crisis, when FIIs were net sellers for nearly two years in the run-up to the September 2008 crash while domestic investors were buyers.

Despite the trends, some analysts differ.

Nitin Jain, the president and chief executive officer of global asset and wealth management firm Edelweiss Capital, said there is no evidence of domestic investors being less smart than their foreign counterparts.

“We should not paint all FIIs with the same brush. Investment flows from exchange-traded funds, which is retail money – as volatile and sentiment-driven as domestic retail and mutual funds flows. FIIs, on the other end of the spectrum, also get pension money and sovereign wealth funds, which are long-term and their investment style is similar to that of domestic insurance companies,” said Jain.

Source: http://www.business-standard.com/article/markets/how-fiis-outsmart-domestic-investors-116032800052_1.html

The Companies (Amendment) Bill, 2016 introduced in Loksabha

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On 16th March 2016 Lok Sabha has passed the Companies (Amendment) Bill 2016 to further amend the Companies Act, 2013

The Act introduced significant changes related to disclosures to stakeholders, accountability of directors, auditors and key managerial personnel, investor protection and corporate governance. However, Government received number of representations from industry Chambers, Professional Institutes, legal experts and Ministries/Departments regarding difficulties faced in compliance of certain provisions. Amendments of the Act were carried out through the Companies (Amendment) Act, 2015 to address the immediate difficulties arising out of the initial experience of the working of the Act, and to facilitate “ease of doing business”.

The changes introduced are broadly aimed at addressing difficulties in implementation owing to stringency of compliance requirements; facilitating ease of doing business in order to promote growth with employment; harmonization with accounting standards, the regulations of Securities and Exchange Board of India Act, 1992 and the Reserve Bank of India Act, 1934; rectifying omissions and inconsistencies in the Act, and carrying out amendments in the provisions relating to qualifications and selection of members of the National Company Law Tribunal and the National Company Law Appellate Tribunal in accordance with the directions of the Supreme Court.

The Companies (Amendment) Bill, 2016, inter alia, proposes the following, namely:—

  • Simplification of the private placements: Simplification of the private placement process by doing away with separate offer letter, by making filing of details or records of applicants to be part of return of allotment only, and reducing number of filings to Registrar;

Earlier, there was significant difficulty was created by the Companies Act, with the unduly restrictive set of provisions pertaining to private placements. This over-ambitious scheme of regulation was a direct result of some incidents in the past. One such provision requires every private placement to be routed through a separate bank account opened for this purpose, and a bar on utilization of the money until allotment. More often than not, the amount received in private placement is large, and companies cannot afford to keep the amount idle.

Now, this private placements process has been simplified with the Companies (Amendment) Bill, 2016.

(b) Allow unrestricted object clause in the Memorandum of Association dispensing with detailed listing of objects, self-declarations to replace affidavits from subscribers to memorandum and first directors;

(c) Provisions relating to forward dealing and insider trading to be omitted from the Act;

(d) Requirement of approval of the Central Government for Managerial remuneration done away with:

Requirement of approval of the Central Government for Managerial remuneration above prescribed limits is replaced by approval through special resolution by shareholders;

Central Government control on managerial remuneration is eliminated. Section 197, which places limits on managerial remuneration, will now require special resolution only, if the limits placed under the law are exceeded.

(e) Loans to entities in which directors are interested:

A company may give loans to entities in which directors are interested after passing special resolution and adhering to disclosure requirement;

 (f) Provisions easing business by overseas entities

In support of the “Make in India” policy, it is quite appropriate that the Companies (Amendment) Bill, 2016 must have enabled foreign owned businesses to form companies in India. Accordingly, there are several provisions to facilitate foreign-owned businesses:

– EGM of a wholly-owned subsidiary of a foreign company may be called anywhere in India.

– The requirement for a resident director provided in section 149 is sought to be amended to provide that in case of newly incorporated companies the condition may be satisfied subsequent to incorporation, rather than before incorporation.

– Remove restrictions on layers of subsidiaries and investment companies

(g) Allow for exempting class of foreign companies from registering and compliance regime under the Act;

(h) Align prescription for companies to have Audit Committee and Nomination and Remuneration Committee with that of Independent Directors;

(i) Test of materiality to be introduced for pecuniary interest for testing independence of Independent Directors;

(j) Disclosures in the prospectus required under the Companies Act and the Securities and Exchange Board of India Act, 1992 and the regulations made thereunder to be aligned by omitting prescriptions in the Companies Act and allowing these prescriptions to be made by the Securities and Exchange Board of India in consultation with the Central Government;

(k) Provide for maintenance of register of significant beneficial owners by a company, and filing of returns in this regard to the Registrar;

(l) Removal of requirement for annual ratification of appointment or continuance of auditor;

(m) Amend provisions relating to Corporate Social Responsibility to bring greater clarity.

http://www.prsindia.org/uploads/media/Companies,%202016/Companies%20bill,%202016.pdf

SEBI board clears wilful defaulter rules; clarifies on definition of control

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SEBI says wilful defaulters would also be not allowed to take control of any other listed company.

India’s market regulator Securities and Exchange Board of India (SEBI), on Saturday, tightened the rules for so-called wilful defaulters preventing them from raising funds through public issues. The rules, however, are applicable prospectively which suggests that those who have already been termed wilful defaulters may not come within the ambit of these strictures.

Following a board meeting in Delhi, on Saturday, SEBI said that entities declared as wilful defaulters will not be allowed to raise money through sale of shares, debt securities and non-convertible preference redeemable shares to the public.

“No issuer shall make a public issue of equity securities/debt securities/non-convertible redeemable preference shares, if the issuer company or its promoter or its director is in the list of the wilful defaulters,” said a press release issued by SEBI.

Such entities will not be allowed to take control of another listed entity, SEBI said. These firms will also not be allowed to set up market entities like mutual funds. The rules are applicable prospectively, said the regulator.

At a press conference in New Delhi, UK Sinha, chairman of SEBI said that all rules made by the regulator are prospective in nature.

In January 2015, SEBI issued a draft paper proposing that wilful defaulters would not be allowed to sell shares, debt securities and non-convertible preference redeemable shares to the public. The paper had suggested that wilful defaulters be barred from taking control of another listed entity, but that they be allowed to participate in counter offers to deal with hostile takeover bids. Each of these restrictions would be applicable if the issuer, its promoter, group company or director of the issuer of such securities were in the list of wilful defaulters published by RBI, the stock market regulator had said.

The final regulations announced on Saturday are along the same lines.

Policy makers have toughened their stance against wilful defaulters as they try and improve the asset quality of the banking sector. While defaulters who are hit by external factors such as weakness in economic conditions may deserve some help from the system, policy makers feel that wilful defaulters must not be spared.

RBI has been asking banks to get tough on wilful defaulters and has a tough set of rules in place which say that anyone tagged a wilful defaulter cannot raise fresh funds from the banking system. The banking regulator, however, has been of the view that such defaulters also need to have their access to capital markets restricted. This has now happened with SEBI tightening its rules as well.

While RBI has not disclosed the quantum of loans that fall under the wilful default category, data has emerged from some large public sector banks.

Loans worth Rs.11,700 crore given by State Bank of India have been locked up as non-performing assets as nearly 1,160 defaulters have wilfully decided not to repay, PTI reported on 24 February.

Another state-owned lender, Punjab National Bank (PNB), declared 904 borrowers who owed it a combined Rs.10,869.71 crore as of December-end as wilful defaulters. PNB added 140 companies to the list of wilful defaulters in the December quarter alone.

The most prominent case in this regard is the attempt by banks and investigative agencies to recover dues from UB Group chairman Vijay Mallya, who has been declared a wilful defaulter by lenders like State Bank of India. The country’s largest lender had moved the Bangalore debt recovery tribunal (DRT) seeking an arrest warrant against Mallya. On Friday, the Enforcement Directorate (ED) issued summons to Mallya, asking him to be personally present before it on 18 March. The summons is part of ED’s probe into a money laundering case against the former liquor baron.

Definition of control

Separately, the market regulator clarified what the term ‘control’ means in the context of mergers and acquisitions (M&As) by pegging the shareholding threshold of an acquirer at 25%.

“Considering the international practices and the current regulatory environment in India, the definition of control may be amended such that control is defined as (a) the right or entitlement to exercise at least 25% of voting rights of a company irrespective of whether such holding gives de facto control and/or (b) the right to appoint majority of the non-independent directors of a company,” said SEBI in its press release.

The move is aimed at removing ambiguities that companies currently confront during takeovers. Currently, the definition of ‘control’ under the Substantial Acquisition of Shares and Takeovers (SAST) Regulations, 2011—popularly known as the Takeover Code—doesn’t specify a threshold for shareholding.

The current takeover code states that an acquirer is in ‘control’ only if the board of the company that’s being acquired gives the former the right to appoint a majority of the directors, and have the final say on management and policy decisions.

The control of management or policy decisions is through shareholding or management rights or shareholders’ agreement or voting agreements.

SEBI has also cleared a framework for protective rights with an exhaustive list of rights that do not lead to acquisition of control.

“An illustrative list of protective rights which would not amount to acquisition of control may be issued. Grant of such protective rights to an investor may be subject to obtaining the public shareholders’ approval (majority of minority),” SEBI said.

Somasekhar Sundaresan, partner, J Sagar Associates, said “The company that is declared to be a willful defaulter ought to be left out of the severity of SEBI’s measures, and instead those in control of the company alone should have been targeted. A defaulter, whether willful or not, requires restructuring, and imposing prohibitions on the business entity could in fact hurt lenders for whose benefit the policy on willful defaulters has been developed. Expanding the scope to directors would also mean that turning around a company that is accused of being a willful defaulter would become impossible since no one would join the board even after throwing out the old promoters. Detailed provisions on when a borrowing entity ceases to be a willful defaulter would be needed—it cannot be after the board is replaced since, so long as it is a willful defaulter, no one would be able to join the board.”

“The move to allow shareholders to confer the power to exercise veto rights to selected investors without getting into whether they mean “control” is a positive measure. Open offers are for the benefit of public shareholders and they must have the power to waive an open offer. This is a very mature measure of reform. Market players would keenly await what SEBI puts out as a list of veto rights aimed at investor protection will not constitute control,” added Sundaresan.

Source: http://www.livemint.com/Money/LSmk1XiZ26pZnyGj5m4ufP/Sebi-bars-wilful-defaulters-from-markets-posts-at-listed-fi.html