Plans by Bharat Sanchar Nigam, the state-owned Indian telephone company, to raise $10 billion in the country’s biggest initial public offering of shares by a local company must overcome waning interest from foreign investors, rattled by the decline for Indian stock markets this year.
Bharat Sanchar Nigam, or BSNL, hopes to issue its stock within six months. Bankers said the target could be met only if the process was fasttracked and other issues, like union opposition, were ironed out.
While smaller share offerings have been completed this year despite the market sell-off, thanks to a large pool of local investors, the biggest deals will struggle without foreign participation.
‘‘For foreign funds, equity is definitely no longer the preferred asset class,’’ said Jayesh Shroff,who helps oversee investments at SBI Mutual Fund. ‘‘They are quite wary of it and Indian IPOs do not fit their strategy now.’’ Andrew Holland, managing director of the strategic investment group at DSP Merrill Lynch, said poor secondary markets, the global credit crunch and nervousness about weakening growth forecasts for India had kept foreign funds on the sidelines.
The government said in January that it planned to list BSNL by selling a 10 percent stake, but the plan was put on hold after opposition from the governing coalition’s Communist allies and labor unions.
The largest initial share offering in India so far, the $3 billion offer from Reliance Power, was fully subscribed within minutes of its opening in January.
Foreign funds own 4.7 percent of the company, or nearly half the stake sold in the initial public offer.
Its success was due in part to heavy subscription from foreign hedge funds, overseas banks and portfoliomanagers.
But in July, UTI Asset Management, the oldest mutual fund in India, put off a $480 million initial public offering, joining other heavyweight companies that werewaiting to proceedwith stock offerings, after foreign funds indicated that they wanted the price of the offering cut by a quarter.
‘‘It all depends on market sentiment.There is clearly a flavor for public sector stocks, but pricing is the key,’’ said Paras Adenwalla, chief investment officer at ING Asset Management (India).
‘‘Will a large IPO be subscribed? Yes. But the question will be, is there anything left on the table for investors to make money after the listing?’’ Some bankers have also said that big share issues were unlikely to be completed before national elections expected by May.
At least 10 Indian companies have delayed or shelved initial public offerings worth about $4 billion this year, because of sluggish demand amid a deep market slide. And the outlook remains downbeat for the rest of the year, in line with the global trend.
‘‘There is a wariness towards taking fresh positions in Indian offerings,’’ said S. Ramesh, chief operating officer at Kotak Mahindra Capital.
India’s central bank has raised interest rates to a seven-year high of 9 percent in a bid to tame an inflation rate that is close to 12 percent. Analysts have cut economic growth forecasts, and corporate earnings appear to be slowing.
But companies looking to raise relatively smaller amounts of about 1 billion rupees, or $24 million, have managed to scrape through in the last four months, helped largely by support from local banks, domestic mutual funds and wealthy individuals.
About 10 companies have raised a total of nearly 4.5 billion rupees over the last three months, while two companies hope to raise as much as 2.5 billion rupees in the next two weeks.
The proceeds from initial share offerings in India fell 7 percent in the period from January through June, to $4.3 billion, Thomson Reuters data show. Total share sales, including IPOs, fell to $615 million for the April-to-June quarter, the lowest reading since the last quarter of 2003.