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India tech IPO boom to provide crucial test of investor appetite

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Indian business & finance updates

Food delivery app Zomato has kicked off a flurry of stock market debuts by Indian start-ups that hope crackdowns on Chinese technology groups could prompt global investors to turn their attention to India’s tech offerings.

The $1.25bn initial public offering of Zomato in Mumbai, which launched last week, is expected to be followed in the coming months by the $2.2bn listing of Paytm, a payments and financial services app that has come to symbolise the excitement surrounding India’s digitalisation. Paytm and Zomato are both backed by Chinese billionaire Jack Ma’s Ant Group, while the former counts Japan’s SoftBank as an investor.

The IPOs arrive as investors become increasingly bullish on India following Beijing’s targeting of China’s internet groups. Ride-hailing business Didi was hit with a regulatory probe days after it raised $4.4bn in a New York IPO, sending shares of big Chinese tech stocks plummeting.

Bankers said the Indian listings represent a coming of age for the nation’s tech start-ups, where cash-burning businesses have until now been funded solely by private investors. However, some analysts have raised concerns that India’s equity markets are overheating and warned of regulators potentially targeting the sector. Investor demand for Zomato’s IPO outstripped supply by 32 times as of Friday.

“There’s a clamour for it, people have limited avenues to invest in Indian tech right now,” said Ausang Shukla, managing director of corporate finance at brokerage Ambit.

“Founders of fierce competitors of Zomato and Paytm, even they want the IPOs to be successful,” he added. “If they bottom out then the entire sector gets a bad name.”

Zomato and rival Swiggy, the two dominant food delivery players, have come to embody the breakneck growth of Indian tech start-ups. Both have used heavy discounts to expand into hundreds of cities, and orders were turbocharged during the Covid-19 pandemic, as lockdowns confined Indians to their homes. Nonetheless, Zomato reported a net loss of $100m in the year to March.

Zomato and Paytm could be joined in the public markets by Flipkart, an ecommerce group that is backed by US retailer Walmart and competes with Amazon in India, after it raised $3.6bn this month, giving it a $38bn valuation. Insurance aggregator Policybazaar, beauty retailer Nykaa and logistics company Delhivery have all indicated that they will list soon.

“India’s tech IPO boom has been long-awaited — there are some world-class businesses in the pipeline,” said Udhay Furtado, co-head of Asian equity capital markets at Citigroup. “There is clearly a global appetite . . . we are seeing investors from all corners of the globe including several who have not been active in the local Indian market before.”

Column chart of IPO proceeds in first half of each year ($bn) showing India listings are set for their biggest year since 2008

Zomato’s IPO is expected to give it a valuation of $8bn, while Paytm’s mooted $25bn market capitalisation would place it among India’s top 25 biggest companies.

Losses at both companies have not deterred investors, said Neha Singh, founder of data provider Tracxn in Bangalore. “In India, the expectation was that you become profitable and then you do the listing. That’s changed,” said Singh. “Markets are at an all-time high, so people want to take advantage.”

The listings coincide with a broader rush by Indian companies to tap public markets even as the economy suffers after a brutal second wave of coronavirus. The 37 businesses that listed in India in the first half of 2021 raised $3.9bn, according to Refinitiv data, the most since the global financial crisis. The benchmark Nifty 50 index has risen 13 per cent this year to a record.

For Zomato, investors hope the company will prove to be India’s answer to Meituan, China’s largest food delivery platform that turned profitable in 2019. Paytm has billed itself as a superapp with the potential to become India’s Alipay, Ant Group’s online supermarket of financial offerings.

Like its peers, Zomato has sucked up market share in India’s vast informal economy as lockdowns pushed more business online. But analysts question whether the boom will last.

Jefferies said it was a “critical investor concern” whether food delivery in India could be sustainably profitable in the long run, given that order values remain well below those in China or the US. “While there are a lot of questions on the minds of investors . . . the FOMO factor should keep the excitement level high,” the investment bank wrote.

Like in China, regulatory uncertainty is a risk in India as the government introduces legislation designed to give it more control over the data of its 1.4bn people.

“India’s regulators have had somewhat fickle views of the role of tech in the financial industry especially when dealing with foreign players,” said Zennon Kapron, director at Kapronasia, a regional fintech consultancy.

For Zomato and other start-ups about to hit the market, they will be hoping investors give them the benefit of the doubt.

“Zomato is the first one off the block, so it has to do well,” said Samir Arora, founder of Helios Capital, an investment group. “Zomato is a unique thing and Indians like unique things in the market,” he added. “It’s lossmaking, but it’s not obscene.”



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Abu Dhabi’s Adnoc plans 7.5% stake float of oil drilling unit

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Abu Dhabi National Oil Co updates

The Abu Dhabi National Oil Company plans to list a 7.5 per cent stake in its drilling unit via an initial public offering on the Gulf emirate’s stock exchange next month.

Adnoc Drilling is 95 per cent owned by Adnoc, which has in recent years embarked on a modernisation drive including diversifying its investor base and unlocking cash from its infrastructure base.

In 2018, when Baker Hughes acquired a 5 per cent stake in the business, Adnoc Drilling had an equity value of $10bn.

“Adnoc Drilling’s planned value creation opportunities, including a major rig fleet expansion and well drilling program, ideally position the company to take full advantage of emerging opportunities,” said Sultan Al Jaber, Adnoc’s chief executive.

The offering, which is open to domestic and international investors, is expected to take place in October on the Abu Dhabi Securities Exchange (ADX) subject to market conditions and regulatory approvals. The size of the offering could be increased.

The United Arab Emirates, which is already the third-largest producer in Opec, is committed to raising its output capacity from 4m barrels a day to 5m barrels a day.

The Gulf state earlier this year clashed with its larger neighbour, Opec kingpin Saudi Arabia, by refusing to endorse a planned Opec+ production increase. Abu Dhabi argued that its “baseline”, the level from which Opec quotas are calculated, should be increased. A compromise deal was clinched in July that raised the UAE’s baseline quota from 3.2m barrels a day to 3.5m barrels a day.

Adnoc Drilling, the largest drilling company in the Middle East by fleet size, is the sole provider of drilling services to Adnoc. In 2020, Adnoc Drilling’s revenues were $2.1bn, with a profit of $569m.

The deal would be the second IPO launched by Adnoc since the 2017 listing of its distribution arm, the largest operator of petrol stations and convenience stores in the UAE.

The national oil company has separately opened its refineries and oil and gas pipelines businesses to international investors. It is also seeking to sell stakes in its power plants and other infrastructure.

Adnoc earlier this year started trading futures of its flagship crude oil, Murban, on ICE Futures Abu Dhabi, a commodities exchange based in the capital’s financial district.

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Chemicals distributor Azelis seeks to raise €880m in Brussels IPO

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IPOs updates

Speciality chemicals distributor Azelis is seeking to raise €880m in an initial public offering in Brussels in what will be one of the sector’s largest listings this year.

The Antwerp-based company, which is owned by Swedish buyout firm EQT, is targeting a valuation of more than €5bn, according to people familiar with the matter.

The IPO would make Azelis the world’s fourth-largest listed chemicals distributor in a highly fragmented €117bn market. As well as using the IPO’s proceeds to cut some of its €1.6bn of debt, the company also plans to make further acquisitions.

“As a public company, we believe we will be able to fully capitalise on growth opportunities, continuing to complement our strong organic growth with accretive acquisitions,” said chief executive Hans Joachim Müller.

Müller said he hoped to expand operations in Asia and gain a foothold in Latin America, where Azelis does not have a presence.

Founded in 2001 from the merger of French and Italian distributors, Azelis’s business extends beyond distribution. It also has a network of laboratories that test products and add new ingredients to existing products for clients.

The company expects tougher regulations in markets from animal nutrition to cosmetics to push more chemical producers to outsource distribution and formulation services to larger external providers.

Azelis laboratory
In addition to distribution, Azelis also has laboratories that test products and add new ingredients to existing products for clients © Ben Connell

Azelis generated revenues of €2.2bn last year, while its operating profit climbed 10 per cent from 2019. It employs 2,800 people across 56 countries.

Demand for chemicals has rebounded rapidly from the pandemic’s initial hit, sending valuations for the sector soaring and handing EQT a chance to capitalise.

Nouryon, the former chemicals arm of Akzo Nobel that was acquired by US buyout firm Carlyle in 2018 in a €10bn deal, is also set to go public.

Although Azelis has only a 2 per cent market share, it is enough to make it one of the sector’s largest players alongside Germany’s Brenntag, IMCD from the Netherlands and Illinois-based Univar Solutions. In a sign of investor appetite for the sector, Brenntag’s share price is at an all-time high.

Müller said that because the company’s global service centre was in Belgium, Brussels was the best place to list. It would be the largest IPO on the Brussels Stock Exchange since 2007.

EQT will retain a stake in the company following the IPO, which Azelis had considered before the Swedish private equity firm led a buyout of the business in 2018.



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Petershill/Goldman Sachs: private capital seeks paradoxical public market boost

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Goldman Sachs Group updates

Groucho Marx was suspicious of any “exclusive” club whose standards were so low he could join it. The UK’s dyspeptic long funds may have similar reservations about Petershill Partners. This offshoot of Goldman Sachs buys stakes in private equity groups and hedge fund managers. The investment bank plans to float Petershill, which may be worth about $5bn, in London. Anyone with a broking account will be able to buy shares previously only available to select Goldman clients.

The Wall Street bank will remain a gatekeeper in another respect by investing the capital of Petershill Partners in return for fees. These look generous, even though a minimum 7.5 per cent annual charge would be levied on income from investee companies, rather than on fund value.

Goldman, which is diversifying into asset management, will have earned its money if it uses its powerful network to make lucrative investments.

If you think that will happen, Petershill will be a worthwhile investment itself. If not, shrug and pass on. A stock market is a place to test business propositions. It is not a corporate Hall of Fame, though that is how London sometimes self-defeatingly seems to see itself.

Petershill invests in asset managers rather than their products. This spares end investors two tiers of management fees. Typically, it purchases minority stakes in private capital managers when they issue equity to finance expansion.

Private capital is hot at the moment. You might therefore ask why Petershill is seeking a mooted $750m from unfashionable public investors rather than that source.

The reason is that alternative asset managers from Apollo to Pershing Square prize permanent capital, which they can deploy for the long term. The stock market is a good supplier. You might also see adroit timing in Petershill’s plan to float when private capital management is, in the words of one buyout boss: “The hottest of hot spaces at the peakiest of market peaks”.

However, the mooted price of about $5bn would equate to only around 22 times estimated net income in the 12 months to June. That is a lot lower than US peer Blue Owl and quoted UK buyout group Bridgepoint, which are trading at more than 30 times forward earnings.

Routinely presented as polarities, private and public market capital remain inextricably entwined, as this deal would prove.

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