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Reliance Power has decided to offer three bonus shares to its investors for every five held in an effort to compensate for the fall of its share price, However the bonus shares will not be offered to the promoters.
The bonus issue will effectively reduce the Reliance Power’s share price by nearly 40 per cent to Rs 269 for retail investors (who paid Rs 430 a share) and by 37 per cent to Rs 281 for institutional investors. The market reaction to this bonus announcement appeared mixed. One long time broker said it would make little difference since after any such issue of shares, the stock price typically goes down and investors may still find they have not gained much. “However, they may be more favourably disposed towards the group, which has lined up more IPOs,” said another broker, After shareholder approval, the record date for the bonus shares would be communicated through the exchanges.�

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The withdrawal of two high-profile IPOs on poor investor response and the tepid listing of the Reliance Power stock underline how transient the recent euphoric conditions in the primary market really were. These events probably signal a decisive shift in the way Initial Public Offerings (IPOs) will be priced, evaluated and purchased in the months ahead.

Consider the facts. In three short weeks, IPOs have gone from being subscribed several times over to a state where some of them are unable to scrounge up even the minimum required bids. Investors have gone from taking leveraged bets on offers to withdrawing their bids at the last minute. The Emaar MGF and Wockhardt Hospitals offers were no doubt aggressively priced and carried high execution risks. However, such factors hardly deterred investors — individual and institutional — from giving the thumbs up to equally risky IPOs barely a couple of weeks ago. Euphoria about IPOs reached a crescendo just before this meltdown. Companies seeking funds from the primary market were pricing their businesses at a huge premium to listed peers; fancy valuations were demanded for businesses that were still on the drawing board and ‘grey’ market premia for IPOs were so widely publicised that one could have mistaken them for stock market quotations! Hopefully, the failed offers and dwindling listing gains will induce investors to treat such hype with more scepticism. From the issuers’ standpoint this may lead to quality offers being priced more realistically. Companies with a negligible track record, which should ideally be seeking venture capital rather than retail funds for their business ideas, may be forced to rethink their IPO plans. Over the medium term, all this may make the primary market less attractive to speculators and help it attract more serious investors looking to participate in the long-term growth prospects of a business. However, this does not rule out more pain in the near term. Unbridled optimism in the stock market usually gives way to extreme pessimism and recent events may well end up choking off IPO funds even for quality businesses in the immediate days ahead. In this context, the response to forthcoming IPOs from issuers such as Rural Electrification Corporation needs to be keenly watched.

For investors, the events of the past week indicate a need to reframe their IPO strategy. They should go back to evaluating offers on business fundamentals rather than on the potential for listing gains. Investors should also evaluate the opportunity cost involved in tying up funds with an IPO, at a time when attractive investment opportunities may be available in the secondary market. This apart, the poor response from the institutional investors to these IPOs suggests that institutions, both domestic and foreign, may be developing an increasing aversion to risk, even if the “growth story” is peddled from a sought-after market such as India. This may well indicate that the market as a whole may now be unwilling to pay an exorbitant price for growth, whether it is for already listed businesses or companies taking the IPO route. Caution may be the watchword.

Source: Business Line dated 12-02-08

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State owned Rural Electrification Corporation proposes to raise upto Rs 1640 crore through an initial public offering of 15.61 crore equity shares.
The IPO is scheduled on February 19 and closes on February 22. The price band has been set at Rs 90-105. At the lower end of the band, the conpany will raise Rs 1400 Crore and at the cap Rs 1640 crore.
Half of the shares on offer constitute a fresh offer of equity while the other half is being divested by the Government. There is a reservation of 39 lakh shares for employees at issue price. The offer constitutes 18.1 per cent of the company’s post issue paid-up capital

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The telecom infrastructure unit of Reliance Communications, Reliance Infratel Ltd is planning to enter the capital market with an IPO of 8.91 crore shares constituting 10.05 percent of its post issue paid up equity capital of the subsidiary, the face value of the share is decided to be at Rs 5 each.�
The company had recently raised 1400 crore by selling a 5 percent stake to a number of global financial investors which fetched a valuation of Rs 28,000 crore for Reliance Infratel.  The funds raised through the IPO will be used to finance passive infrastructure sites and for other general corporate puroses, The breakup of allotment is as follows

Qualified Institutional investors : 60 per cent
Non Institutional investors : 10 per cent
Retail participants                : 30 per cent

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Reliance Power is set to make its debut in the stock markets on February 11. The equity shares of the company will be listed on both BSE and NSE. The IPO was the largest to hit the Indian Markets, where the issue was subscribed by about 70 times. The qualified institutional buyers portions was subscribed by 82.5 times; the non-institutional portions was subscribed by 159.6 times and the retail portion by 13.6 times.The issue got an aggregate commitment of over Rs 7,50,000 crore, as against the issue size of Rs 11,560 crore.
The allotment and refund exercise after IPO closed was complete and the company now has about 42 lakh shareholders.

(Source: Business Line dated 5-02-08)

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Some Food for thought:

Whoever I meet is asking me how much will Reliance Power get oversubscribed in retail. Will it be 5 times, 10 times, or 25 times. I am being thrown all sort of figures. Frankly speaking, I have no clue. But one thing is for sure, I believe in the India story and I am sure this IPO is going to surprise me with the oversubscription figures.

But to put things in perspective, I did a simple back of the envelope calculation. This may serve as a guide to all:

The number of applications which can be made can only be less than or equal to the number of active demat accounts in India. So I thought lets find the total number of demat accounts in India.

As per NSDL site: 69 lakh active accounts as on 12-Jan-2008
As per CDSL site: 38 lakh accounts (excluding closed accounts)

So total demat acocunts: 107 lakh.

Now out of these we have to remove the institutional and the HNI demat accounts to get the figure for retail applicants. I could not find the ratio of retail accounts to non-retail accounts anywhere. If anyone has any information on this, please enlighten me.

For the sake of our calculation, I take 3 assumptions: 50%, 40% and 30% of all accounts to be retail accounts.

In case of 50%:
Total retail demat accounts: 53.5 lakh.
Now lets assume that entire India applies and everyone applies for 225 shares (max eligible for retail).

In that scenario, max application can be for 120 crores shares. Total shares available for retail is 6.84 crores. That means max oversubscription for retail possible: around 17.5 times.

In case of 40% retail demat accounts, max application can be for 96 crores shares. So total oversubscription for retail possible: 14 times.

In case of 30% retail demat accounts, max application can be for 72 crores shares. So total oversubscription for retail possible: 10.5 times.

And remember, here we are assuming that ENTIRE RETAIL INDIA applies for the maximum of Rs. 1 lakh worth shares.

Now you take your own call as to how much oversubscription is practically reasonable.

I am estimating a reasonable 5 times oversubscription to a max of 7-8 times in retail category.

Only Friday can tell us how big a history is made in the Indian markets!
Cheers India!

IPO IPO, Oversubscription, Reliance Power

Reliance Power got fully subscribed in the first 60 seconds. A 12000 crore IPO getting subscribed in 60 seconds only shows the strength and the bright future of the Indian markets. The IPO is already oversubscribed 9.4 times with 1 lakh crores collected till 1 PM on day one.

As per our estimates, we expect around 150 times of oversubscription in the HNI category and around 5 times of oversubscription in the retail category. We will keep you updated on the subscription figures. So keep checking this post regularly.

We recommend all Retail investors to go for part payment option. Keeping the expected oversubscription in mind, retail investors may not be required to make any further payment on allotment and should receive fully paid-up shares and should be able to sell on listing day itself. This assumption changes only in case the retail segment of the IPO is oversubscribed less than 4 times and you get an allotment of more than 60 shares.

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Future Capital Holdings Limited IPO
Issue Opens on: January 11, 2008
Issue Closes on: January 16, 2008
Price Band: Rs. 700 to Rs. 765 per equity share

IPO Future Capital Holdings, IPO

Reliance Power Limited IPO
Issue opens on:  January 15, 2008
Issue closes on: January 18, 2008
Price Band: Rs. 405 to Rs. 450 per equity share

We recommend all investors to subscribe to this issue for both listing gains as well as long term investment.

IPO IPO, Reliance Power

Reliance Anil Dhirubhai Ambani Group is planning to come out with an IPO of Reliance Power. 

They had filed the draft prospectus for its IPO in the first week of October. The IPO is understood to have secured the approval of SEBI with the condition of a 5 year lock-in clause for the promoters.

It is believed that the promoters are uncomfortable with this clause and that may delay the IPO a bit. Once this is sorted out, the IPO is expected to hit the markets soon.

On Tuesday, January 1, 2008, rating agency ICRA assigned an IPO Grade of 4 out of 5 (above average fundamentals) to the IPO. They came out with a release which said, “The grade assigned reflects the benefits arising out of being a part of the Reliance Anil Dhirubhai Ambani Group which has considerable experience across the value chain in the power sector and the expected cost competitiveness of most of the power projects in relation to the markets it proposes to serve. ”

“Further, the IPO proceeds would enable the company to tie up the equity funding for the first tranche of projects that it has identified.”, said the release.

“The grading assigned to the proposed IPO also takes into consideration the prospects for the power generation business in the country with increasing regulatory clarity, gradual emergence of a market for trading in power and improvement in financial position of some of the utilities in the state sector. “, the release added.

“The grading is, however, constrained by the implementation risks inherent in project implementation of the scale and magnitude being envisaged by the company and uncertainty on issues related to gas.”, the release clarified.

The market is very excited in anticipation of this IPO. It is also expected that retail investors may get a discount on issue price like the ICICI Bank Issue. We expect this IPO to be a good success with huge over-subscriptions.

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