Saturday, February 02, 2008

Stock market turmoil affects Indian IPOs too

By Anette J├Ânsson

Wockhardt Hospitals and Emaar MGF Land lower their indicative price bands on the eve of opening the bookbuilding.

While there has been no visible slowdown in the pace of Indian companies seeking to go public so far, the reduction of the targeted deal sizes by the latest two listing candidates shows India isn’t entirely immune to the pressures felt elsewhere in Asia.

Wockhardt Hospitals and Emaar MGF Land both lowered their earlier announced price ranges before opening the bookbuilding on their respective initial public offerings, in a direct response to the decline in the secondary market over the past three weeks.

Sources note that the initial investor response to both offerings has been encouraging, but the recent drop in the share price of many of their sector peers has also made their targeted valuations relatively less attractive. advertisement

“The price band on Indian IPOs has to be set two to two and a half weeks before the book opens and at that point of time, the market conditions were different,” one source says with regard to the decision to reduce the price range on the Wockhardt deal. “Because of the general market volatility we decided to make it a little more attractive to the investors.”

India’s IPO market continues to look an epitome of health when compared with the rest of the region, however. For one, it is the only Asian market where issuers continue to launch – and complete – deals, although admittedly this may be partially due to the fact that it won’t be affected by the upcoming Lunar New Year that will see many other markets shut down for a varying number of holidays next week. However, so far, India has also not seen any major IPOs being pulled this year, while Hong Kong, Singapore and the Philippines have all had deals that have had to be postponed.

In Hong Kong, four of the six IPOs planned for January were called off just before pricing, while two more were delayed before the launch of the formal roadshow.

Notably, IRB Infrastructure Developers, which started accepting orders for its Indian IPO yesterday, kept its earlier announced price range intact.

The Indian stock market opened 2008 on a high note, outperforming all other major Asian markets and closing at new record highs on four of year’s first six trading days. Since January 11, however, the benchmark Bombay Sensex index has fallen 15.3% as concerns about a US economic slowdown and further subprime-related write-offs by the major banks have continued to affect sentiment across Asia. The aggressive interest rate cuts by the Federal Reserve over the past week and a half have helped to ease the panic selling, but the markets have remained volatile. In the wake of the latest 50bp cut on Wednesday, the Indian market fell another 0.6% yesterday.

However, a 1.3% gain on Wall Street overnight ought to give Asian markets a positive boost today.

Wockhardt Hospitals lowered its indicated price range by about 16% at the top end of the range and close to 20% at the bottom. The new range is Rs225 to Rs260, which will give a total deal size of between Rs5.64 billion and Rs6.52 billion ($143 million to $165 million). The deal, which opened for subscription yesterday, is being arranged by Citi and Kotak Mahindra as joint global coordinators. They also act as bookrunning lead managers together with ICICI Securities and SBI Capital Markets. The books will close on February 5.

There was no information available last night on the websites of either the Bombay Stock Exchange or the National Stock Exchange of India about the amount of orders received for Wockhardt’s IPO on the first day. The company, which is one of the largest private healthcare services providers in India based on number of hospital beds, is offering 102.6 million shares, or 24% of enlarged share capital. Excluding the 500,000 shares that will be set aside for employees, 60% will be sold to qualified institutional bidders, 10% to corporates and high net-worth individuals and 30% to retail investors.

The company has a pan-India presence and currently operates 10 “super-specialty” hospitals, five regional specialty intensive care units and 10 pharmacies. As indicated by the name, the company is part of the Wockhardt group, which is active within pharmaceuticals and biotechnology.

Emaar MGF Land isn’t due to start accepting orders until today, but sources said yesterday that it will be offering its shares at a price between Rs540 and Rs630 apiece. This represents a reduction of about 11.5% at the bottom of the range and 8.7% at the top versus the initial range of Rs610 to Rs690. The new range gives a total deal size of Rs55.4 billion to Rs64.6 billion ($1.4 billion to $1.64 billion), which will make it the second largest Indian IPO this year after Reliance Power’s $3 billion deal.

The property developer, which is a joint venture between Dubai’s Emaar Properties PJSC and India’s MGF Development, will keep its books open until February 6. Enam Securities and DSP Merrill Lynch are the global coordinators and bookrunning lead managers together with Citi, Goldman Sachs, HSBC, JPMorgan and Kotak Mahindra.

Having started commercial operations in India as recently as February 2005, the listing candidate has yet to complete its first project and has incurred a net operating loss in each of its first two fiscal years. In the preliminary listing document the company acknowledges that it will receive limited revenues in the immediate future and as a result, the losses may continue in the short term. While this increases the execution risk and calls upon the investors to put a great deal of trust in the management and the promoters, it won’t necessarily have any impact on the demand for the deal, as shown by the massive response to Reliance Power’s offering which closed on January 18.

A greenfield power producer that won’t receive any significant revenues for almost two years, the Anil Ambani-backed company attracted $188 billion of demand, suggesting there are still a lot of investors who are seeking to invest in India’s long-term growth prospects and who are willing to overlook the current market turbulence when deciding which deals to buy.

Like Reliance Power, Emaar MGF Land is also backed by two well-known names, which should make investors comfortable with the issue. Between them, Emaar Properties and MGF Development have completed approximately 50 million sqf of residential and commercial real estate developments in 16 countries. MGF has over the past 10 years established itself as one of the key players in the real estate industry in Northern India. The joint venture owns about 13,000 acres of land reserves and has development plans for 12,000 of those, which is it says are expected to provide it with a proposed saleable area of 566 million sqf.

Emaar MGF Land is offering 102.6 million shares, or 10.4% of the company. Of the total, 60% will go to QIBs, 10% to corporate and high net-worth individuals and 30% to retail investors.

Meanwhile, OnMobile Global, which closed the bookbuilding for its IPO on Wednesday, received orders for close to 11 times the number of shares available. The QIB portion was 17 times covered, which must be seen as encouraging in the current market environment. The company, which provides value-added telecommunication software products and services targeted directly to the subscribers, is aiming to raise between $117 million and $124 million with the final price expected to be released today. Deutsche Bank and ICICI Securities are joint bookrunners.

IRB Infrastructure, which is primarily a toll road operator, is seeking to raise between Rs9.45 billion and Rs11.23 billion ($240 million to $285 million) from its IPO. It is offering 51.06 million shares at a price between Rs185 and Rs220 apiece with the help of Deutsche Bank and Kotak Mahindra.

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