Why Timing of Afcons’ Rs 5,430 Crore IPO is Important for the Shapoorji Pallonji Group 

Afcons Infrastructure, the flagship infrastructure engineering and construction company of the over 150-year-old Shapoorji Pallonji Group, is set to open its initial public offering (IPO) for subscription on October 25. The company will raise Rs 5,430 crore through a mix of promoters' offer for sale and fresh equity share issues.   

The proceeds from the fresh issue will be utilised for capital expenditure, working capital requirements and debt repayment. The Afcons leadership is looking to cash in on the strong interest of investors, particularly common Indians, to lap up shares of new companies in the primary market.  

Before the IPO hit the markets, the company raised Rs 3,000 crore via pre-placement of shares.  

Notably, the timing of the offering is important for the SP Group amid attempts to boost liquidity through asset monetisation.   

The Bond Problem  

Goswami Infratech, the promoter of Afcons Infrastructure, raised Rs 14,300 crore from the bond market in June last year. The bond issue attracted significant attention because it offered a high coupon rate of 18.75 per cent to bondholders.   

As an assurance for investors, the company had said at the time that it would receive a substantial liquidity boost due to the listing of Afcons and the sale of Gopalpur Port.   

The group struck a deal with Adani Group earlier this year in March to sell 56 per cent of its stake in the Gopalpur port.  

However, the monetisation of its stake in Afcons has suffered delays which led the group to ask for an extension of deadline to pay interest on the bond. Before the offer hit the bourses, it held a 71.87 per cent stake in the company, which will reduce to 53.52 per cent when the listing process is complete.   

Due to the delays in the timeline of Afcons listing, reports suggest the coupon rate of the bond went up by 400 basis points to 22.75 per cent. The bond was rerated by rating agency CareEdge. It was downgraded to BB- from BB.   

In a note published in September, the agency said, “The revision in the rating assigned to Non-Convertible Debentures of Goswami Infratech Private Limited (GIPL) takes into account delays in fundraising at the group level, as against earlier envisaged timelines, which has thereby resulted in heightened refinancing risk associated with the NCD repayment.”  

However, a bond market analyst noted that the listing of Afcons will act as a boost for the company in the short term. “The stake of SP Group in Tata Sons already acts as a cushion and the listing will lead to a boost in liquidity which should allay some concerns,” the analyst noted. SP Group’s Cyrus Investments and Sterling Investment Corp holds an 18.4 per cent stake in Tata Group’s flagship firm Tata Sons.  

The successful listing of Afcons could also resolve the delay in the interest payment to bondholders for which the group had asked for an extension of deadline. As per a Moneycontrol report, SP Group is likely to pay Rs 1,800 crore as interest to bondholders by the end of this month.

New Opportunities  

Addressing reporters post the announcement of the IPO, Afcons’ leadership expressed hope that investors would participate in the public fundraising. Hitesh Kumar Singh, Head of Corporate Strategy, highlighted the potential of the company to deliver good returns. “The company boasts of robust return on capital employed (ROCE) and a diversified order book which is helping our growth,” he said.   

As per the investor presentation, the company is present in major infrastructure segments which include marine and industrial, surface transport, urban infrastructure, hydro and underground and oil and gas.   

In the financial year 2024, the ROCE of the company stood at 20 per cent while the return on equity was recorded at 13 per cent. The company wants to leverage its position to strengthen its presence in domestic markets as well as some key international markets.   

Given that 70 per cent of the company’s order book is from government-related entities, the ongoing capex push acts as a tailwind for the company. At a time when the company is looking to expand its presence in Africa and West Asia, the management indicated that the fundraising could act as a significant boost.     

At 9:19 am, the grey market premium of the IPO stood at Rs 70. The price band of the IPO has been set at Rs 446 to Rs 463 which will open for subscription on October 25.