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IPO processing time should be brought down to 7 days: Bhave

PTI — Wed, 18 Nov 2009 17:05:00 GMT

Mumbai: Market regulator Securities and Exchange Board of India (Sebi) Wednesday said it wants to bring down the time required for IPO processing to seven days from 20 days at present over the next one year.

“The listing time should come down to seven days... primary market is still somewhat inefficient compared to the secondary market,” Sebi Chairman, C B Bhave said at a conference here.

He said the timely settlement of transactions continue to be a challenge in the system. Also, there was a need to reduce the cost of mutual funds and the risk of investors.

“We need to look at reducing the cost of mutual funds and risk of investors,” Bhave said. Noting that the worst (of the global financial crisis) is behind us, Bhave said the market should not get carried away with the euphoria.

IPO processing time should be brought down to 7 days: Bhave

PTI — Wed, 18 Nov 2009 08:11:00 GMT

Mumbai: Market regulator Securities and Exchange Board of India (Sebi) on Wednesday said it wants to bring down the time required for IPO processing to seven days from 20 days at present over the next one year.

“The listing time should come down to seven days... primary market is still somewhat inefficient compared to the secondary market,” Sebi chairman, C B Bhave said at a conference here.

He said the timely settlement of transactions continue to be a challenge in the system.

Also, there was a need to reduce the cost of mutual funds and the risk of investors.

“We need to look at reducing the cost of mutual funds and risk of investors,” Bhave said.

Noting that the worst (of the global financial crisis) is behind us, Bhave said the market should not get carried away with the euphoria.

IPO funding seen hit by unsecured lending curb

Jeanette Rodrigues and Pratish Narayanan / Reuters — Wed, 18 Nov 2009 07:54:00 GMT

Mumbai: A popular tactic used by Indian brokerages to raise money for rich clients is likely to be banned by the central bank’s move to curb unregulated lending, potentially crimping funding for a long pipeline of planned IPOs.

The Reserve Bank of India (RBI) this month proposed to stop borrowers from issuing non-convertible debt with a maturity of less than 90 days, part of a broader effort to remove excess liquidity as overseas funds pour into its markets.

Brokerages have made such borrowings mostly from mutual funds, typically at twice the commercial paper market rate, and then turned around and loaned the funds to rich clients. The wealthy investors, in turn, used the cash to invest in a recent slew of IPOs, fuelling aggressive valuations.

“The Reserve Bank of India is afraid of asset bubbles,” said Alex Mathews, head of research at Geojit BNP Paribas Financial Services. “This will definitely be a hindrance for brokerages.”

Analysts say the move will increase the costs associated with IPO fundraising in India, as brokers used the financing tactic to work around regulations and avoid hefty stamp duty.

Brokers would issue a one-year secured non-convertible debenture (NCD) with a put/call option exercisable before 89 days. Under Indian law, a company has 90 days in which to place security for the paper or pay a higher stamp duty.

The new rule, which is expected to take effect by the end of the month, eliminates that loophole.

“It was a profitable business. People have made a good amount of money,” said an official at a local brokerage based in Mumbai, who declined to be identified and said his firm had made a few such deals.

“However, it is a cycle that forms. Now that recent IPOs have not been performing well, sentiment has gone sour. So people will anyway not come to us with big demands for funds,” he added.

The central bank move comes in the wake of recent heavily subscribed IPOs of state-run firms NHPC and Oil India, which together raised $1.8 billion for the government.

Despite strong subscription levels, NHPC and private sector firms Adani Power and Indiabulls Power made muted IPO debuts in recent months, with analysts blaming high valuations fuelled in part by the unregulated IPO financing.

Indian IPOs expected in the coming months include a $1.1 billion issue from power company Sterlite Energy, a unit of Sterlite Industries, and a $900 million sale by Reliance Infratel, an arm of Reliance Communications.

“The intention of the Reserve Bank is to make IPO funding more scarce,” said Arun Kejriwal, whose investment firm advises wealthy clients.

Heavy oversubscription has not resulted in strong market performance, as investors who took on leverage to subscribe to new listings sold shares quickly in order to repay their loans.

Oil India, which was priced at a discount to its peers, is the only big recent Indian IPO now trading above its offer price.

For the NHPC offering, the 10% of shares alloted to wealthy investors was oversubscribed 57 times. Fund managers said roughly $2.5 billion worth of NHPC IPO applications was funded through the soon-to-be-outlawed practice.

Lower valuations?

Other short-term funding options for brokers, such as commercial paper and bank loans, are less attractive because they are governed by stringent guidelines and have longer maturities.

“When compared with a daily put/call instrument, (brokers) don’t really have an alternative,” said Kaustubh Kulkarni, director of capital markets at Standard Chartered in Mumbai.

“CPs (commercial paper) have a minimum maturity and certain eligibility criteria, which will mean an increase in costs of borrowing. Corporates’ access to cheap short-end funds will reduce,” he said.

The rule change is expected to lower margins for brokers and their clients and decrease the availability of IPO funding.

“The RBI is being vigilant. This may help bring down IPO valuations, which anyway needed to go down,” said Geojit’s Mathews.

Analysts say lower valuations could stoke larger retail subscription for planned IPOs. The removal of a key funding source, however, could cut down on subscription levels from high net-worth individuals.

The crackdown comes as India readies a series of stake sales in government firms as Asia’s third-largest economy looks to help finance its stimulus plan without adding to its fiscal deficit.

Meanwhile, easy money in the financial system due to government stimulus measures has led to froth in the market and the fear that asset bubbles could derail the recovery.

At its monetary policy review in October, India’s central bank left key policy rates unchanged but tightened credit to the commercial property sector and lifted its inflation forecast.

It also said there were signs excess liquidity is seeping into asset prices.

Cox & Kings isn’t expensive

Mark to Market | Mobis Philipose, Ravi Ananthanarayanan and Vatsala Kamat — Tue, 17 Nov 2009 19:45:00 GMT

Cox and Kings (India) Ltd’s initial public offering (IPO) is well timed. The travel and tourism industry is at the inflection point post-recession and there is limited competition in the branded segment. This should result in decent demand from investors.

Cox and King’s revenue has grown at a compounded annual growth rate (CAGR) of at least 65% to Rs294 crore in the three years till FY09. Competitor Thomas Cook (India) Ltd registered a more modest CAGR of around 32% for the three years until 2008 (revenue of Rs326 crore). The company has enjoyed a consistent operating profit margin of around 42-44% and net profit has grown at a three-year CAGR of 80%.

But along with the impressive growth in revenue and profit, even the company’s debt has risen at a fast pace. In FY08, debt stood at Rs130 crore, which ballooned to Rs430 crore by end-FY09. The company has made some acquisitions which have also caused a drain on operating cash flow, resulting in higher debt. Not surprisingly, the company will use about one-fifth of the IPO proceeds to repay debt.

This is expected to bring the debt-equity ratio down from 1.6:1 to 1:1. It plans to use the remainder of the Rs600 crore or so for acquisitions and infuse funds into some subsidiaries, besides capital investments into refurbishing the existing centres.

At first look, Cox and King seems to have an extremely high proportion of sundry debtors. For example, during FY09, sundry debtors’ position was Rs232 crore, which works out to 80% of revenue of Rs294 crore. But it must be noted here that while the debtors’ position is stated on a gross basis (reflecting value of total package procured by customers), revenue is stated on a net basis (reflecting only the fee earned by the company from the package). A better measure of receivables would be to compare them with gross revenue, but this figure is not available.

While Cox and King’s revenue and profit growth have been impressive in the past few years, whether this will endure depends on the state of the economy. As things stand, the outlook for tourism looks good with the improvement in business and consumer sentiment.

As far as valuations go, the issue is priced at a little less than 15 times trailing earnings, a 33% discount to market valuations of at least 22 times trailing earnings. To some extent, the discount reflects investor concern about the vagaries of the tourism business. Having said that, there also seems to be money left on the table for IPO investors.

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Initial offers need to be priced more sensibly: Enam Securities

Udayan Mukherjee / CNBC-TV18 — Tue, 17 Nov 2009 17:00:00 GMT

Mumbai: The chairman of financial services firm Enam Securities Pvt. Ltd, Vallabh Bhanshali, spoke about the market and the new listings. Enam was share-sale manager for the recent initial public offerings (IPOs) of Adani Power Ltd and Indiabulls Power Ltd. Edited excerpts:

Are markets back on track and are Indian firms out of the woods?

I think there is a bit of caution, of course. But, overall, I think there is a huge amount of confidence. There is a bit of a surprise element also, which is actually a pleasant surprise.

Power tale: Enam’s Bhanshali says the sector may stay attractive.

What is that surprise?

People are quite surprised by the strength of the recovery in India, or rather continued absence of any weakness, and there is month-on-month improvement on sentiment, demand and so on.

The global news, at least as far as India is concerned, continues to become better in terms of money flow, in terms of interest in India and investment in India. I think people are quite surprised.

When you say surprised, is it the strength of the recovery which has left them surprised, or are you saying that some believe that it is unattainable given that the global fabric has not mended fully?

Surprise in the sense that people thought the number of QIPs (qualified institutional placements) that got done will not get done and that such large PSU (public sector unit) divestment programme may not happen or that people will not have interest in continued investment in the secondary market, and things like that.

So quite contrary to the general global gloom, people find that India has continued to shine. It is just not one of differential pricing. When the markets were at, say, 10,000-11,000 or 12,000 (points of the Bombay Stock Exchange’s benchmark index, the Sensex), people thought India was cheap. But even at 16,000-17,000 (points), there is discreet India interest and that is a surprise.

Is it the return of confidence or a function of Indian companies having been successful at raising money or is it the underlying demand which is making people confident?

I think there are two-three things. One is the underlying demand in India—that is the demand for goods and services—has remained strong, I think supported first by the rural India and now increasingly by the urban India. On the other hand, global liquidity continues to find movement into India, and thirdly, the long-term story in India was always good. The fact that it has sustained so nicely in the last 12 months makes it even better.

This is something that we cannot always assess and these are the things that are adding to this pleasant surprise.

The recent experience with IPO listings for power companies has not been great. Has that taken any sheen off the power story?

Not off the power story as such. But yes, valuations have to be more sensible not only for power companies, but for all companies that come to the market. One thought that these prices will recover, (but) they haven’t. That is reality. But as far as the underlying story on power is concerned, I think, for the next several years, that story is likely to remain attractive.

What is the general investor feedback about the kind of government paper which is coming in?

The interesting thing about this market is that the excitement is rather concealed. Investors are not really showing the kind of exuberance that we saw in 2007. It is very discreet. Only in some cases we find that we can hear in one-on-one discussions also that people are specifically saying, yes, I am interested in this. People are always saying, let us examine it, and if everything is right, it’s getting done, which is a very healthy thing.

Government paper is in that category; there is a discreet show of confidence in that. But our sense is that government paper will get all done because the long-term record of PSUs in creating value for investors has been fantastic. And one thinks that the government is learning its lessons about pricing the issues.

Do you expect a lot of it starting in January?

The government won’t do a lot of it in the sense that not any and every company will be able to go public. The government has an agenda, has a priority as to what it can and what it cannot do. I think generally the attitude is that whatever can, over a period of time, get done, let’s go ahead and do it.

So we don’t have full visibility on the list, but as you already know, some of the ones that have been announced, I think they will get done over the next three-four months.

What about commodity companies?

We heard very confident statements both from chemicals, petrochemicals companies and from metals companies that they think the worst is over. They think that demand is emerging. They think the global economy, the developed world may take some time. But there is this wonderful way in which markets work and when you have held back consumption for a while, it comes back.

So I think because there is no new supply—supply has dwindled considerably—no new mine openings are happening... So we see these companies talking about balance being restored to markets.

What is the general sense you have heard on Indian valuations? Are people saying that earnings will accelerate at a pace where valuations will not look expensive next year? Or do they seem apprehensive about buying into various sectors in India?

I don’t think people are saying that, but the underlying and between-the-lines statement seems to be that probably this is how it will be and let us not get very exuberant now. Let some time pass that keeps the valuation in some range. And that is the behaviour that you are seeing in the market. The market has been fairly range-bound, biding time. And investors also seem to be giving the sense that let us wait it out, things should improve.

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APM to start operations on east coast

P.R. Sanjai — Sun, 15 Nov 2009 15:33:00 GMT

Mumbai: Global port operator APM Terminals Management B.V. plans to start operations on the east coast of India and is considering an initial public offering of shares in its Gujarat unit over the next year, chief executive officer (Africa, Middle East and Indian subcontinent) Charles Menkhorst said.

APM Terminals is a division of Denmark-based AP Moller-Maersk A/S that operates Maersk Line, the world’s largest container shipping company.

“We cannot afford (to) not be present on the east coast,” Menkhorst said in an interview. Having “strategically” covered the west coast of India with two ports and considering the “tremendous” growth opportunity in India, “we are now looking at developing a port on the east coast”.

APM Terminals, which runs a global network of 48 terminals, is attempting to expand operations in India, the world’s second fastest growing major economy, where it has developed a multi-purpose port in Pipavav, run by Gujarat Pipavav Port Ltd, and Navi Mumbai-based Gateway Terminals India Pvt. Ltd in partnership with Container Corp. of India Ltd, or Concor.

The company is yet to make a decision on the project it wants to develop the east coast. According to Menkhorst, the project will more likely be “brownfield”—a facility at an existing site— than “greenfield,” which would involve construction from scratch at a new site.

“We are carefully examining all opportunities coming up,” he said.

Menkhorst said the firm is considering raising additional funds for the expansion of Gujarat Pipavav either by shareholders infusing additional money or seeking a bank loan. The third option is taking the company public.

The Adani Group-operated Mundra Port and Special Economic Zone Ltd, which runs India’s biggest private port, had a successful initial public offering (IPO) in November 2007, the only Indian port operator to have done so.

Menkhorst, who joined the company from global logistics firm DHL International GmbH, said India is an important location for his company’s port network, but financial viability would the chief criterion for deciding on any project.

The firm globally invested $723 million (Rs3,362 crore) in new ports and port projects in calendar year 2008 after having spent $850 million in 2007.

DP World Ltd, the world’s fourth biggest container port operator that is owned by the Dubai government, has already developed a string of ports on India’s west coast in Mundra (Gujarat), Navi Mumbai (Maharashtra), Kochi (Kerala) and on the east coast in Chennai (Tamil Nadu), Visakhapatnam (Andhra Pradesh) and Kulpi (West Bengal).

Port users will likely welcome APM Terminals’ move to expand operations, given that some of them are dissatisfied with state-run port operators.

C.R. Nambiar, vice-president at Seahorse Ship Agencies Pvt. Ltd, which uses Indian ports, says firms like his prefer “efficiency at a reasonable cost”, irrespective of nationality.

“… given the administrative inefficiency of the state undertakings, in terms of delays in taking decisions and even more delay in implementing them, it would be better to have more of such private operators, whether foreign or Indian,” he said.

Also, as the economy picks up momentum and domestic demand for goods returns, albeit slowly, the outlook for the shipping and logistics industry would improve.

Port traffic at the 12 major ports grew 2.9% year-on-year in the three months ended September, domestic brokerage Centrum Broking Pvt. Ltd’s analysts Siddhartha Khemka and Mahantesh Sabarad wrote in a 12 October report. They noted that the growth rate exceeded the previous quarter’s 1.9% growth, adding that it fuelled hopes of a recovery in the second half of the fiscal.

“We expect container volumes to revive in FY11, once the overall economy recovers,” the analysts wrote. “We estimate 4% volume growth (in standard container unit terms) during FY10E and 8.4% growth in FY11.”

FY10E refers to estimates for the fiscal year ending March 2010.

Foreign firms such as APM Terminals are also looking to India for another, more basic reason: their Indian port units have performed better than other international units despite a global downturn that has plunged more mature economies such as the US and parts of Europe into a painful recession.

“We still have more appetite for more cost-effective port projects on the Indian coast. All of our Indian ports have performed well,” Anil Singh, DP World’s senior vice-president and managing director (subcontinent), said without divulging details.

A 27 August statement on DP World’s website on interim results for the six months to 30 June said the Asia-Pacific and Indian subcontinent region showed the least impact of the global downturn, with only a 10% decline in volumes, a 7% decline in revenue and a 6% decline in Ebitda (earnings before interest, tax, depreciation and amortization) compared with other regions.

16 realty firms to raise Rs9k cr via IPO in 3 months

PTI — Thu, 12 Nov 2009 12:59:00 GMT

Mumbai: At least 16 real estate firms are set to come with their initial public offerings to raise Rs9,000 crore in the next three months.

“Going by the DRHPs submitted by the 16 real estate companies, they are planning to raise at least Rs9,000 crore. This is going to be raised in the next three months,” Knight Frank India chairman Pranay Vakil said on the sidelines of a summit organized by the Ficci here.

Vakil said that among the 16 issues, five-six are from the Southern India and a few from Northern India.

Informed sources said that Sahara plans to raise Rs3,450 crore through the IPO, Lodha Developers Rs3,000 crore, Godrej Properties Rs600 crore, DB Realty Rs1,500 crore and Kumar Builders Rs450 crore among others. Emmar MGF has also filed the DRHP with the Sebi and plans to raise Rs3,850 crore.

Hoping that the issues would be reasonably priced, he said, “Hopefully, people will now realise that you can’t take away every single money from the market and they will keep something from the investors.”

Vakil also said that there was ample liquidity, both from domestic and international sources, for the issues to sail through, but in case, one or two fails, it would be a disaster to the entire market.

IPO auctions haven’t taken off elsewhere

Wed, 11 Nov 2009 15:49:00 GMT

The Securities and Exchange Board of India, or Sebi, has decided to experiment with the auction system for public offerings, by allowing this for follow-on share sales, to start with. This seems to suggest that at some point, the option will be extended to initial public offerings (IPOs) as well.

The world over, the auction system has failed to take off. Most IPOs are done using the book-building method, where issuers and their merchant bankers indicate a price range they are comfortable with. Bankers market the offer through a series of roadshows and, finally, the book is built, with investors bidding for the number of shares they are interested in at close to the indicated price. Many experts have complained about the non-transparency of the book-building method, since bankers and issuers have the final say on allotments and pricing.

The auctioning system is superior in that sense, since it addresses the issue of transparency and enables the issuing firm to get the best possible price from the IPO. Still, an auction is very rarely used for public offerings in most markets. Google Inc. made it famous in 2004, but even that event didn’t revive interest in IPO auctions. Of course, opposition by merchant bankers may have a lot to do with that.

Researchers Ravi Jagannathan and Ann Sherman, from the Kellogg School of Management and DePaul University, respectively, pointed out in a 2006 paper titled “Why do IPO auctions fail” that the main reasons for the failure are “the winner’s curse” and “the free rider problem”. The winner’s curse is the tendency for the winner of an auction to overbid. Free riders refer to uninformed investors who bid high in the hope that the auction clearing price will be set by those who do their homework. But this behaviour, in turn, keeps out informed investors, making the auction process unstable. That could be the reason why Sebi is starting the auction process with follow-on offers, which have the advantage of a market price that investors could use as a benchmark for bidding.

It must be noted here that the idea of having a unified auction process was mooted in the economic survey for 2005-06, as a response to the abuse of the “retail quota” by those engaging in multiple applications. The survey had envisaged a new system where quotas will be done away with, and price discovery will move to an auctioning system.

Sebi’s announcement this week is a modification of that, since it leaves the quotas untouched and gives retail investors preferential treatment by allowing them to buy shares at the floor price. This is based on the view that retail participation needs to be encouraged in the capital markets and the primary markets are a good entry point for new investors. But this also takes away the issuer’s ability to raise capital at the most optimal price, to the extent of the retail quota.

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BoA, Barclays, JPMorgan vie for share sale

Subramaniam Sharma / Bloomberg — Tue, 10 Nov 2009 16:04:00 GMT

New Delhi: Bank of America Merrill Lynch, Barclays Plc and JPMorgan Chase and Co. are competing to sell shares for state-run firms in India as the government plans the biggest sell-off in at least five years.

Robert Morrice, Barclays Capital’s Asia-Pacific chairman, plans to double the London-based firm’s investment banking team in India as it vies to sell stock.

JPMorgan hopes for a “slew of disinvestment” by state-run firms, said Kalpana Morparia, the New York-based bank’s chief executive officer in India.

Prime Minister Manmohan Singh’s government pledged to cut holdings in its profitable firms to 90%, accelerating divestments after a five-year slowdown. The Centre may raise Rs25,600 crore from its publicly traded firms, Standard Chartered Bank said, and controls unlisted firms worth $144 billion, according to Morgan Stanley.

“The competition for this business is always extremely fierce,” Kevan Watts, country head for Bank of America (BoA), said in an interview. “It is a big opportunity: we are talking to many people in the government about how we can help with the disinvestment process.”

Indian share sales will add to an IPO rebound in Asia as record-low interest rates and economic stimulus packages fuel a revival in demand for new equities. China Minsheng Banking Corp., Sands China Ltd, Malaysia’s Maxis Bhd and India’s Emaar MGF Land Ltd will lead more than $14 billion of sales in the region.

While government offers are a “prestigious business”, they typically result in lower fees than private sector sales, according to BoA.

BoA ranked seventh in advising on local sales this year, according to Bloomberg data. JPMorgan ranked sixth on domestic share sales, and first in overseas equity offerings by local firms.

Singh, who won re-election in May, had said on Sunday he hopes government sales will accelerate. India netted $11 billion between 1991 and 2008 from asset sales.

India’s benchmark stock index, which had risen every day since the government unveiled the stake sale plan on 5 November, fell 0.4% on Tuesday, limiting its gain for this year to 70%.

Govt IPO push boosts BSNL, Coal India listing hopes

Pratish Narayanan / Reuters — Mon, 09 Nov 2009 16:37:00 GMT

Mumbai: State-owned Coal India Ltd and Bharat Sanchar Nigam Ltd (BSNL) are the prime candidates to list on Indian bourses under the government’s new rules for selling stakes in state firms, but valuations will have to be tempered to attract investors.

The government said last week that unlisted state firms making profits in the past three consecutive years should list, as the country looks to fuel growth without further widening a large fiscal deficit. The initial public offering (IPO) windfall could raise at least $10 billion (Rs46,600 crore) and prompt significant inflows of foreign investment. Coal India and BSNL are among firms meeting the new rules.

Coal India chairman Partha Bhattacharyya said his firm has been advised by the Centre to appoint an independent financial adviser for a potential IPO. “We expect to make the appointment by December,” he said.

BSNL chairman Kuldeep Goyal said the government has to decide the timing for any potential IPO of his company.

This follows recent strongly subscribed IPOs of state-run NHPC Ltd and Oil India Ltd, which together raised $1.8 billion. Oil India also made a strong market debut, with analysts widely agreeing its valuations were attractive. But NHPC and private sector firms Adani Power Ltd and Indiabulls Power Ltd made muted debuts, with analysts blaming high IPO prices.

“The valuations offered by the government have to be reasonable,” said Phani Sekhar, fund manager at Angel Broking.

The government would also do well to time any potential offerings when the stock market is on an uptrend, he said. “If the government does not want to compromise on valuations, as in the case of NHPC, then it has to choose its timing very carefully,” he said.

The government also said all profitable, listed state firms must have at least 10% of their shares in public hands. The government should raise about $5.5 billion by selling stakes in such firms in which it holds more than 90%, according to Standard Chartered estimates.

Such firms include MMTC Ltd, Hindustan Copper Ltd, Rashtriya Chemicals and Fertilizers Ltd, Neyveli Lignite Corp. Ltd, National Fertilizers Ltd, State Trading Corp. of India Ltd, NMDC Ltd and Andrew Yule and Co. Ltd.

Asian IPO fatigue hits India, elsewhere

Narayanan Somasundaram and Prashant Mehra / Reuters — Thu, 05 Nov 2009 19:00:00 GMT

Hong Kong / Mumbai: An ache has hit the belly of investors who feasted on initial public offerings (IPOs) in Asia, in a sign the primary equity window that saw a big revival two quarters ago is beginning to quickly shut.

The indigestion is becoming a familiar trend across India, China and Australia, making a case for firms forming a long IPO pipeline to trim their high price expectations.

At least 30 companies plan to list on either the Hong Kong and Indian markets over the next few months.

The Hong Kong list includes big names such as aluminium giant Rusal, casino operator Las Vegas Sands Corp. and China Minsheng Banking Corp., and a clutch of property firms. Reliance Infratel Ltd, a unit of Reliance Communications Ltd, and Vedanta Resources’ Sterlite Energy Ltd are among big Indian offers planned.

“The pricing has been pretty aggressive. Hopefully this market volatility will prevent some of them from launching their IPOs now,” said Ho Yin Pong, a Hong Kong-based portfolio manager at RCM Asia Pacific.

He feels he can pick up the same stocks, especially the Indian ones, cheaper in the secondary market.

Last week, Deutsche Bank pulled out all stops to cover a $100 million (Rs471 crore today) IPO of Indian cable television firm DEN Networks Ltd, which managed to scramble through in the final hours with huge support from India’s state-run life insurance giant.

“That was a real close one. DB (Deutsche Bank) did rally us to bail out the issue,” an official at Life Insurance Corp. of India (LIC), which put in bids for nearly a quarter of DEN Networks, said on condition of anonymity. “The pricing was a tad stiff, but we did spot the long-term opportunity.”

Deutsche Bank was the primary arranger for the share offering, which closed on the day another Indian firm, Indiabulls Power, had a disastrous listing.

A Deutsche Bank spokesman declined to comment on the deal. Spokespersons from LIC, which plans to pump in Rs50,000 crore into Indian equity this year, could not be reached for comment.

Investor appetite began waning after a rash of offerings in the Chinese property sector and Indian power sector had tepid openings.

Australia has also seen a cooling in demand for new offerings, with shares of department store chain Myer Holdings Ltd falling 9% in their debut earlier this month. Its price to earnings ratio was a tad below a main competitor.

Asian property listing are seen particularly vulnerable to the softening sentiment, with at least 16 Indian developers and a bunch of Chinese real estate firms eying listings.

“Even if one or two of these fail, it will be disastrous for the industry, because the confidence that is gaining now will be hit,” said Pranay Vakil, India head for global property services firm Knight Frank.

Glorious Property fell 23% on its Hong Kong debut this month, and Shenzhen-based Excellence Real Estate Group Ltd last week shelved plans for an up to $1 billion Hong Kong IPO, blaming market conditions.

That should give caution to companies waiting in the wings to cash in on the equity rally this year, which has boosted the MSCI Asia Pacific ex-Japan stocks index nearly 60% so far this year despite the recent correction. But falling markets and continuing uncertainty about the health of the economy are spooking investor sentiment. Asian markets have fallen 7% from their 2009 peak last month.

“The opportunity is shrinking, fading fast. Too many at the same time,” said a banker who has helped arrange about $5 billion in new share sales so far this year for his Indian clients. “The answer to sustain the momentum is attractive pricing, but I would lose my job if I insist that.” The banker, who is not authorised to speak to the media, did not want to be named.

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HSBC plans big China boost in run-up to planned IPO

Reuters — Mon, 02 Nov 2009 13:41:00 GMT

Taipei: HSBC Holdings is preparing to boost its China presence about 20% next year, as it ramps up for an IPO in one of its fastest growing markets, a top company executive said.

Europe’s biggest bank aims to open 15-20 new branches in China next year pending regulatory approval, up from the 90-100 it will have at the end of this year, Sandy Flockhart, Asia chief executive said in Taipei on Monday.

“We will be the largest international bank in China,” Flockhart told reporters, following the bank’s first board meeting in Taipei. “We will continue to invest in China in 2010.”

HSBC has been among the most active foreign banks in China, where it earned a pre-tax profit of $752 million in the first half of the year, accounting for about 15% of the company’s total. It competes there with the likes of Citigroup and Standard Chartered.

In addition to its own branch network, HSBC’s China investments also include a 19% stake in Bank of Communications, a 16.8% stake in Ping An Insurance, and a 12% stake in Industrial Bank.

HSBC said recently it would go to a dual-headquarters system in Hong Kong and London to emphasise the importance the bank places on Asia.

Last month, the bank said it was swinging its power base back to its place of birth 144 years ago by moving its chief executive to Hong Kong.

Flockhart said his bank, which posted a 50% drop in first half profit, will focus its Asia acquisition strategy on China and other emerging markets as it increasingly relies on the region for growth.

Shanghai IPO

To underscore the importance of China to its future, HSBC has become one of a handful of foreign companies to announce its intent to list in China when the country announces rules for such listings as soon as late this year or in early 2010.

Hong Kong’s Bank of East Asia has said it would like to make such a listing, and media have reported Standard Chartered, which also has a heavy China presence, is also interested in such a listing.

HSBC’s planned China IPO is dependent on regulatory requirements, and there is no specific timeframe yet, Flockhart said.

HSBC could raise as much as 50 billion yuan ($7.3 billion) in a Shanghai listing as soon as next year as it vies to become one of the first foreign companies to list in China, people familiar with the matter told Reuters in August.

The bank has hired China International Capital Corp (CICC) and Citic Securities Co to help arrange an initial public offering in Shanghai, a person with direct knowledge of the situation told Reuters.

The Shanghai flotation is a way to accelerate the bank’s growth in the mainland at a time when international rivals have retreated, the company has said.

HSBC Holdings said in August its first-half profit halved to $5 billion as it was hit by rising bad debts in the US, Europe and Asia.

Malaysia’s Maxis to return to bourse with $3.43 bn IPO

M. Jegathesan / AFP — Sun, 01 Nov 2009 16:43:00 GMT

Kuala Lumpur: Malaysia’s top mobile operator, Maxis, is tipped to receive a warm welcome back to the bourse this month in an initial public offering (IPO) worth around $3.43 billion (Rs16,121 crore), billed as the biggest in South-East Asian history.

Maxis, controlled by reclusive Malaysian tycoon Ananda Krishnan and Saudi Telecom, is launching the IPO on Bursa Malaysia two years after it was taken private and delisted.

It is offering 2.25 billion, or 30%, of its shares at an indicative price of 5.20 ringgit ($1.52) which would raise 11.7 billion ringgit. Most of the shares will go to institutional investors.

Parent firm Maxis Communications Bhd is expected to deploy the proceeds of the sale, slated for 19 November, on funding expansion in the booming Indian and Indonesian markets, and to reduce debt.

Economic pundits are upbeat about the listing despite the uncertain global economic outlook that has soured other recent share offerings in the region, but warn that the market remained unpredictable.

Yeah Kim Leng, chief economist with ratings agency RAM Holdings, said that Maxis’ dominant position in the domestic telecom industry had triggered an early rush to collect application forms.

“Investors can smile. The listing is likely to be successful,” he said, but said there were unlikely to be any hefty immediate profits. “The market is very volatile. It is not a sure bet. But the sentiment is strong for Maxis.”

The listing includes only Maxis’ Malaysian mobile business and excludes its ventures in India and Indonesia which remain under Maxis Communications, the unlisted parent company.

Alliance Research said Maxis remains the leading mobile operator in Malaysia in both the prepaid and post-paid segments with some 11.4 million subscriptions as at the end of the first half of 2009.

Its post-paid segment commands a thumping 46.4% of the local market share, but Alliance said the business had “limited growth prospects, without overseas operations”.

“The new listed entity will be without its overseas operations which could offer robust growth potential going forward. Investors are left with domestic operations, in which mobile business faces limited growth,” it said.

Nazir Razak, group chief executive of CIMB Group, which is the principal adviser for the listing exercise, has said the IPO will be the biggest in South-East Asian history.

He has defended the firm’s growth prospects, saying there is still plenty of potential for the group’s broadband and data segments in Malaysia and that SIM card penetration is also predicted to grow.

Why you should be interested in the SKS IPO

Acute Angle | R Sukumar — Fri, 30 Oct 2009 18:46:00 GMT

Mint started life in a temporary office on the sixth floor of a high-rise in New Delhi’s Connaught Place. A state-owned company had moved out, leaving some basic furniture behind, and around 50 of us made do with what was available as our office on the 16th floor of the same building got ready. We spent some mornings discussing story ideas with the two-dozen reporters who had already joined and I remember mentioning at one such meeting that microfinance and cities would soon be entire beats unto themselves.

Three years on, we cover microfinance but still haven’t bestowed beat status on it.

We may soon have to.

India’s best known microfinance company SKS Microfinance will go public sometime next year. The share sale, to my knowledge, will be the second by a microfinance company after Mexico’s Compartamos.

I find the SKS initial public offering (IPO) interesting for a variety of reasons.

As Nachiket Mor, head of the ICICI Foundation and one of the sharpest minds in finance (and other subjects) told a group of Mint editors in September, the SKS IPO will, in many ways, influence the future of the microfinance business in India.

Like elsewhere in the world, there are two scenarios about this. And there are two business models underlying these scenarios.

As first articulated by Connie Bruck in The New Yorker in late 2006—in a way that only the New Yorker can articulate—one model, best exemplified by Muhammad Yunus’ Grameen Bank, is built around the premise that microfinance needn’t be profitable and that it will continue to be powered by donors. The other is built around the premise that the business needs to be profitable to attract investors (much like limited partners, or LPs, fund venture capital and private equity firms).

SKS is a good example of a company trying to follow the second model.

Its challenge isn’t making the model work. It works and there’s enough proof from Compartamos’ financials and SKS’ to show that it does.

Its challenge is to navigate a treacherous regulatory and political terrain.

In India, microfinance has always been seen as some form of charity. So, a microfinance company that makes profits—and which could, some day, declare dividends for its shareholders—will be viewed with suspicion, not just by a section of the left-leaning press and polity, but even by others.

If it manages to change this perception, SKS will find enough takers for its shares. After all, the company is well known. Its investors—most notably among them Vinod Khosla—are equally well known. And SKS founder Vikram Akula is, courtesy a mention in one of Time magazine’s listings of people who matter, even better known. SKS also happens to be profitable. So, the shares will likely be snapped up.

Success, however, will engender its own set of problems.

It will definitely encourage other microfinance companies to sell shares. And not all of these companies will be happy just to make profits from the business. Some, to borrow a term from SKS chief executive officer Suresh Gurumani, whom I met this week, will not be able to resist the temptation to profiteer. And the federal government, state governments and the Reserve Bank of India will then find it difficult not to regulate the business.

I am also not convinced about the merits of a company such as SKS going public.

There is, as several businessmen including Sir Richard Branson have discovered, a great deal to be said in favour of being a closely or privately held enterprise.

I am, however, convinced that the company’s approach is the right one: Charity isn’t a great business model.

R. Sukumar is editor of Mint and will write a weekly column for the newspaper.

Indiabulls Power slumps on stock market debut

Reuters — Fri, 30 Oct 2009 07:38:00 GMT

Mumbai: Utility Indiabulls Power Ltd, which raised about $380 million in a heavily subscribed IPO, slumped as much as 22% on debut and could hit investors appetite for a long and growing IPO pipeline.

The poor debut of Indiabulls Power, a unit of Indiabulls Real Estate and which counts billionaire L.N. Mittal as an investor, comes as a nearly $100 million IPO from cable television firm Den Networks is struggling to be covered, data with the stock exchanges showed.

It also follows tepid openings by Adani Power and NHPC in recent months, although neither fell anywhere near as much as Indiabulls Power.

“Buyers are hurt, have a negative frame of mind as listings so far are far from attractive. I would not recommend them to invest in IPOs,” said Chetan Bhatt, a trader at Pragya Securities.

At 0703 GMT the shares in the company, whose IPO was covered nearly 22 times, were at Rs40, 11.1% below the IPO price of Rs45. It listed at Rs44.95 and hit a low of Rs35. The broader BSE index was up 1.4%.

On Friday, Sterlite Energy, a unit of Sterlite Industries, filed papers for a Rs51 billion IPO.

Indian firms have raised $17 billion in share sales so far this year and a clutch of firms have filed regulatory applications to raise more than $10 billion trying to cash in on a stock market rally that has seen the benchmark index rise around 70%.

Out of favour: IPOs finding fewer takers among retail buyers

Anirudh Laskar and N. Sundaresha Subramanian — Tue, 20 Oct 2009 15:59:00 GMT

Mumbai: The Rs1,529 crore initial public offering, or IPO, of Indiabulls Power Ltd, that closed last Thursday, was subscribed 22 times but demand from retail investors was not as heavy. The portion of the float reserved for them was subscribed 1.09 times.

Listen to V K Sharma, head of research at Anagram Stock Broking, talk about why retail subscriptions in recent IPOs have been low

Download link here

The Indiabulls Power IPO was not an exception. Most of the primary issues that have hit the market in the past few months have witnessed a lukewarm response from retail investors even though institutions have been lapping them up.

“Retail investors typically invest when they see a series of IPOs being listed at premium but the recent issues are not being listed with reasonable gains,” said Prithvi Haldea, chairman and managing director of Prime Database, a Delhi-based primary market tracker. According to him, most retail investors who lost money when markets tumbled in 2008 are yet to see profits on their 2007 investments and are still not willing to take bets.

The pricing of issues is another deterrent.

Graphics: Ahmed Raza Khan / Mint

“IPOs are now coming at exorbitant prices,” said V.K. Sharma, head of research, Anagram Stock Broking Ltd. “As the markets are quoting at prices lower than the 2007 and 2008 levels, many retail investors are preferring to buy shares at a fair valuation on the secondary market.”

After reaching its lifetime high of 20,873.33 in January 2008, India’s benchmark equity index, the Sensex, started slipping as an unprecedented liquidity crunch gripped the global financial markets. The index lost nearly 60% to drop to 8,160.4 in March 2009 before the bulls returned to the market, riding on liquidity.

Since January, at least 14 companies have raised about Rs15,000 crore through IPOs and about 60 more are awaiting the regulator’s nod to raise about Rs50,000 crore.

While the primary market has revived, retail investor interest continues to be tepid. The Rs2,777.25 crore Oil India Ltd issue and the Rs6,038.55 crore IPO of NHPC Ltd saw their retail portions being subscribed 1.7 times and 3.8 times, respectively. The IPOs were subscribed 30 times and 24 times overall respectively.

NHPC listed at a 1.94% premium while Oil India shares recorded an 8.62% gain over the offer price of Rs1,050 on the first day. Shares of Pipavav Shipyard Ltd, which received a 2.89 times subscription from retail investors, listed at a 2.07% loss.

A Mint analysis of subscriptions to IPOs in the past three years suggests that retail subscription, which used to hover at 50-100 times in some issues in 2007 and 2008, has come down to one-three times this year, though they continue to be oversubscribed in their entirety.

During 2007, when the Sensex rose 47.15% to 20,286.99, 100 companies raised around Rs34,179.11 crore from the primary market. Even in 2008, when the markets fell 52.45%, at least 37 firms mopped up Rs16,904.42 crore through such issues with retail subscriptions of 50 times in many of them.

The Religare Enterprises Ltd and Everonn Education Ltd IPOs saw their retail portions being subscribed 93.5 and 123 times, respectively, in 2007. While Religare shares clocked a 182% gain over the offer price on listing day, Everonn listed with a 241.75% gain. Vishal Retail Ltd’s Rs110 crore IPO that received over 50 times subscription of the retail portion, saw a 179% gain on listing day in 2007.

In 2008, even relatively large IPOs such as Future Capital Holdings Ltd (Rs491.34 crore) and BGR Energy Systems Ltd (Rs438.53 crore) recorded 55 times and 47 times oversubscription, respectively, on their retail portions. These issues listed with gains of about 19% and 88%, respectively.

The Rs11,700 crore Reliance Power Ltd IPO, which was oversubscribed 61.52 times, got its retail portion subscribed 15 times. The firm allotted shares to 4.17 million retail investors, denied many others, but its Rs450 a piece share lost 17.22% on debut.

“Retail investors always look for quick gains,” said Amitabh Chakraborty, president, equity, Religare Securities Ltd. “IPOs are coming with an aggressive pricing now, while similar stocks are available on the secondary market with at least 25% discounts.”

Early days

According to Haldea of Prime Database, these are early days of revival in the IPO market and retail investors will start investing money after at least five issues are listed with a premium.

The low retail subscriptions are “definitely a serious indication. Going forward, pricing will be critical to ensure that there are enough takers and issues get listed with a fair premium,” said S. Subramanian, head, investment banking, Enam Securities Pvt. Ltd. “And, of course, we need to take care of all categories (of investors) including qualified institutional buyers (QIBs) and high networth individuals (HNIs).”

Typically, 30-35% of shares in an IPO are reserved for retail investors. A maximum of 50% of shares are allocated to QIBs and at least 15% is reserved for non-institutional investors, including HNIs.

Padam Jain, executive director, investment banking, Anand Rathi Financial Services Ltd, said institutions often decide to hold and look for better returns but retail investors “get jittery if the opening is not good”.

To be sure, the success of a public issue depends on the response from institutions and not retail investors. If the institutional portion is not fully subscribed, the issue has to be abandoned but if the allotment of retail investors isn’t picked up these shares can be apportioned to QIBs or HNIs.

A senior official with a leading registrar pointed out that pricing was more reasonable in the past. “Recent issues have been highly priced. Retail investors want to see some money on the table,” he said, explaining their reservations about primary issues. The official did not want to be named as his firm is associated with many of the recent IPOs.

anirudh.l@livemint.com

Ashwin Ramarathinam contributed to this story.

Cochin Shipyard IPO to have stock options for worker support

P. Manoj — Sun, 18 Oct 2009 17:28:00 GMT

Bangalore: The Union government is likely to reserve part of a planned initial public offering (IPO) in Cochin Shipyard Ltd, India’s biggest shipbuilder under state control, for employees to quell any potential union opposition over the fund-raising plan.

Cochin Shipyard is one among a list of state-run firms identified by the government for an IPO. The yard already has the backing of the shipping ministry to sell shares to fund an expansion plan worth Rs800-1,000 crore.

Building blocks: A ship being built at the Cochin Shipyard. Money raised through an initial public offering will go to the company and that from a secondary share sale to the government.

Union shipping secretary A.P.V.N. Sarma told workers at Cochin Shipyard on 10 October that a proposal to raise funds through an IPO along with employee stock options (Esops) is being considered by the government.

“The proposal to give stock options is being considered to retain workers and also to soften their opposition to a stake sale,” said N.M. Paramesh, finance director at Cochin Shipyard, confirming the shipping secretary’s statement.

The proposed IPO will test the Manmohan Singh government’s resolve to sell stakes in state-owned firms located in Kerala, a state known for its strong unions and being a communist bastion. The state government is led by the Communist Party of India (Marxist), or CPM, which fought against the Congress-led ruling coalition at the Centre in the April-May general election. The CPM and other Left parties have previously opposed plans by the government to sell shares in state-run companies.

The government will piggyback on the IPO to sell its shares in the market, a Union shipping ministry official said. The quantum of the government’s shares to be sold in the IPO will be decided by the cabinet, he said on condition of anonymity.

Money raised through the IPO will go to the company and that from a secondary share sale to the government.

An IPO would make Cochin Shipyard the first state-owned shipbuilder to be listed on the bourses.

Central government-owned firms located in Kerala do not have any significant retail investors.

Kochi-based fertilizer maker, the Fertilisers and Chemicals Travancore Ltd, or FACT, for instance, is 98.10% owned by the Central government, with the balance held by financial institutions, banks and insurance companies.

Many of Cochin Shipyard’s engineering and design staff have been poached by private shipbuilders, both existing and new ones, as they expanded capacities to cater to demand.

“Quite a few senior staff have left Cochin Shipyard over the past 18 months,” said another executive of the firm. Whether the stock options will be given from the government’s portion of the share sale or from the fresh issue will be decided by the cabinet, this executive said.

Cochin Shipyard has suggested the fresh issue of some 240 million shares with a face value of Rs10 each. “The IPO size will depend on the valuation,” he said.

Last month, Pipavav Shipyard Ltd sold 85.5 million shares at Rs58 each to raise Rs496 crore.

Cochin Shipyard has an order book for constructing 20 ships estimated at a value of Rs5,000 crore. At least half the order value is made up by the Indian Navy’s order for an air defence ship, India’s first indigenous aircraft carrier.

The yard is diversifying into building higher-end ships equipped with diesel propulsion. Cochin Shipyard also recently signed a memorandum of understanding (MoU) with IHC Holland Merwede BV, the world’s top dredging equipment maker, to jointly bid for projects to build dredgers. “According to the MoU, IHC will share technology with Cochin Shipyard so that we can build dredgers in our yard,” said V. Kala, company secretary and public information officer at Cochin Shipyard.

Dredgers are specialized ships used to deepen and maintain the channels of ports and harbours.

p.manoj@livemint.com

IPO gets bids worth Rs24,300 cr

Gaurav Singh / Bloomberg — Thu, 15 Oct 2009 16:11:00 GMT

New Delhi: Indiabulls Power Ltd, partly owned by billionaire Lakshmi Mittal, got more than Rs24,300 crore of bids, or 22 times the stock on offer, in an initial public offering (IPO) as investors bet on growth in electricity demand.

The unit of Indiabulls Real Estate Ltd, which will start producing power in February 2012, got bids for 6.08 billion shares in Mumbai at close on Thursday, compared with 278.6 million offered, according to the National Stock Exchange’s website. The shares were being sold at Rs40-45 apiece.

“Investors must have been attracted to the IPO because of the performance of Indiabulls Real Estate, which has outperformed the Sensex by a big margin,” Bhargav Buddhadev, an analyst at Noble Research in Mumbai, said by telephone. “The Indiabulls group has established itself in the eyes of institutional investors.”

India plans to double generation capacity in the next seven years.

Are retail investors turning upbeat on IPOs?

PTI — Tue, 13 Oct 2009 11:41:00 GMT

New Delhi: In what could be viewed as a sign of revival of retail interest in the country’s primary market, the initial public offering of Indiabulls Power has received over 31,000 applications from retail investors on the first day of its issue.

Although the retail portion of the offering remained undersubscribed, the interest was more than what was seen in three major IPOs of the fiscal -- NHPC, Oil India and Adani Power.

According to an analysis, NHPC’s over Rs6,000 crore issue received 30,474 retail applications on the first day while Adani Power’s Rs3,610 crore issue got only 15,000 such applications. The Rs4,982-crore issue of Oil received 7,700 applications.

“Retail investors are gradually staging a comeback and it is a pleasant surprise for the primary market,” SMC Capital equity head Jagannadham Thunuguntla said.

The Rs1,700-crore initial public offer of Indiabulls Power, which hit the market yesterday, got subscribed nearly six times, as institutional investors flooded the counter with maximum number of bids.

However, bids from retail investors on the first day of subscription accounted for only 37% of the shares reserved for them.

Stripped-down Maxis IPO could turn off investors

Soo Ai Peng / Reuters — Mon, 12 Oct 2009 20:10:00 GMT

Kuala Lumpur: With the blessings of the prime minister, the relisting of Malaysia’s top telecom firm Maxis Communications Bhd next month was destined to be a blockbuster, but tepid response from domestic funds so far suggests otherwise.

Reclusive Malaysian billionaire Ananda Krishnan took Maxis private two years ago in a deal that valued the company at about 40 billion ringgit ($11.78 billion, or Rs54,895 crore). Maxis, which also owns telco assets in India and Indonesia, was once one of the most widely owned stocks by foreign investors in Malaysia.

Prime Minister Najib Razak, in his eagerness to boost the country’s sluggish stock market, had asked Ananda to relist Maxis, a call that was heeded, but only in part, because Ananda plans to float just the Malaysian operations in the initial public offering (IPO).

Some fund managers have said they will likely underweight Maxis, whose listing is expected to squeeze a few stocks out of the benchmark stock index due to its size, as valuations seem lofty and growth prospects uninspiring.

“You really have to struggle to find where is growth going to come from,” said Abdul Jalil Rasheed, who helps manage about $2 billion at the Malaysian unit of Aberdeen Asset Management. “This is just the Malaysian business, not the fast-growing Indian or Indonesian business.”

The Indian and Indonesian businesses were together valued at around 7 billion ringgit when Ananda took the firm private two years ago, but analysts feel the current IPO risks overvaluing the mature Malaysian arm by excluding the lucrative overseas operations.

Sources have said Ananda and his partner, Saudi Telecom, are looking to cash in at least $2 billion through the IPO, making it South-East Asia’s biggest since 1995.

An indicative price could be announced this week, while CIMB Research said the company could be valued at $11-12 billion. “Maxis could be looking to raise around $2.5 billion from this,” a source familiar with the deal said on condition of anonymity.

Maxis, controlled by Ananda, Saudi Telecom and some domestic trust funds via unlisted Binariang GSM, will sell 2.25 billion shares, or 30%, of its existing share capital in the IPO. Given the big size of the offering, every bank is salivating for a slice of the pie. Institutional bookbuilding for the IPO is expected to take place by 9 November and the listing by 16 November.

But at a fund manager briefing by CIMB in Kuala Lumpur last week, investors questioned why Maxis, stripped of its prized assets in India and Indonesia, deserved to be valued at the figure of two years ago. Malaysia is a fully saturated market in terms of SIM penetration. “People have talked about 14-16 times (price to earnings ratio),” said Aberdeen’s Jalil. “I think at the lower end of the range it does look OK but if it’s in a late teen or something, it might put off certain people.”

Rival Axiata, a regional player with a presence in Indonesia, India and Sri Lanka, currently trades at 15.9 times 2010 earnings, Thomson Reuters data showed. DiGi, the smallest mobile player in the country, with no regional presence, trades at 14.9 times.

These ratios compared with the 11.7 times fetched by Singapore Telecom, which also operates in a fully saturated market with some regional presence.

Saeed Azhar contributed to this story.

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