In the current financial year, the first two non-bank companies which tapped the market were Abhishek Spinfab and Dewan Sugars. Both the companies had their entire issue underwritten and, in addition, received bridge loan facilities. Swil India, whose rights-cum-public issue is awaiting Sebi clearance, has also applied for bridge loans and its entire public portion of Rs 53 crore has been underwritten.

According to merchant banking sources, the fear of a poor public response is real as few investors want to burn their fingers again. "Not many promoters want to tap the market given the volatile marketconditions and those who do are under severe compulsion. Naturally, they cannot take the risk of the issue not getting 90 per cent subscription and, hence, have to opt for safeguards like underwriting and bridge loans."

Says an official in Apple Finance: "Finding genuine investors is extremely difficult in today's market and naturally promoters are scared. Those who have access to other sources of funds are avoiding the public issue route. Those tapping the public now are relatively small companies which have a skewed debt-equity ratio and need to shore up their equity as soon as possible in order to borrow more."

Consider this: Dewan Sugars' current long-term debt/equity is high at 3.05:1. Post-issue and FCD conversion, the ratio will be a comfortable 0.69:1. Similarly, Abhishek Spinfab's pre-issue debt-equity ratio was 3.9:1, while the post-issue ratio will be 1.4:1.

Notes an official of a Mumbai-based merchant banking outfit: "Underwriting and bridge loans certainly do not comecheap. Most banks/institutions charge 2.5 per cent of the amount underwritten by them. Besides, bridge loans are normally dispensed at over 18-19 per cent, which is quite steep given the current interest rate regime. So, when a company opts for these safeguards it means that it is in desperate need for money and cannot afford not to have a 90 per cent subscription."

Adds an official from Enam Financial: "Promoters who are tapping the market now are doing so on the insistence of financial institutions. Companies tapping the market now are generally those whose projects are almost half completed, but stalled for want of more funds. FIs which have given them term loans for these projects are keen to ensure that the project goes on stream or else they stand to lose money and add to their NPAs. Hence, these institutions are now underwriting the issues to ensure the completion of the project."Abhishek Spinfab's Rs 19.86-crore initial public offering (IPO) was underwritten by IDBI, IFCI, ICICI and LIC whichwere incidentally also the main lenders to the company. Together these institutions have forwarded Rs 88 crore to Abhishek Spinfab for its Rs 144-crore terry-towel manufacturing and cotton yarn processing unit.

Similarly, Dewan Sugars' Rs 13.71-crore fully convertible debenture (FCD) issue has been totally underwritten by Allahabad Bank, Canara Bank, UTI Bank, etc. The former is the largest contributor to the consortium of banks/FIs from which Dewan Sugars avails of its working capital limits. Swil's issue has been underwritten by ICICI, IDBI, IFCI and SBI which have also provided the loan funds. The question now is whether the trend of taking adequate safeguards for tapping the market will continue.

Says a Delhi-based broker: "This trend will continue as long as the demand revival does not take place, especially for commodity products." Notes another merchant banker: "Today, prices in the secondary market are cheaper, so it makes more sense to invest there. Only when the primary market pricesbecome cheaper will the promoters have the courage to go it alone."