Power Grid follow-on raises $1.7 billion

Power Grid Corporation of India priced its follow-on offering at the top end over the weekend, allowing the company and the government to raise the maximum Rs75.76 billion ($1.7 billion) they sought. The deal, which was the second government sell-down in a month after Coal India's IPO, ended up 14.9 times covered and, for the first time in a long time, all the tranches were oversubscribed.

Retail investors have shunned most of the share sales this year, including government follow-on offerings. However, some investors have been drawn back to the primary markets in the past month or so. On Coal India’s recent record-size IPO, for example, the retail offering was 2.1 times covered and the number of retail orders was greater than on any other public sector share offering in India. Though, employees as an investor group have remained absent from most share sales.

But Power Grid appealed to all. As the country’s largest transmission company, it offers exposure to India’s rapidly growing power sector, but at the same time, it is significantly less volatile than the power generators. It also has strong finances and cashflow and was priced at a decent discount versus the existing shares, even though the underlying share price held up well during the four-day bookbuilding.

The fact that the free-float will increase to 30.6% after the offering from just 13.6% also appealed to large international funds and, according to a source, about 60% of the institutional demand came from outside India. This was also the first government share sale that was fully subscribed on the first day since India introduced new rules earlier this year that makes institutional investors pay for all the shares they subscribe for upfront – at the time they place the order. That helped create a lot of momentum in the bookbuilding and also resulted in virtually all orders coming in either at the top of the range or at strike.

The government and the company each sold a 10% stake for a total offering of 841.768 million shares. Of that, 0.4% was reserved for Power Grid employees, leaving approximately 838.4 million shares for the public offering. The price range was set at Rs85 to Rs90 which, at the time the range was fixed on November 5, represented a discount of between 11.8% and 16.7% versus the latest close. However, towards the end of the bookbuilding the share price eased back somewhat and, relative to Friday’s close of Rs99.55 on the National Stock Exchange, the final price of Rs90 represented a discount of 9.6%.

The 50% of the deal that was targeted at qualified institutional buyers (QIBs) after taking out the employee tranche, ended 18.5 times covered, while the 35% retail tranche was 3.85 times covered. Non-institutional investors, essentially corporate and high-net worth individuals, asked for almost 28.9 times the amount of shares set aside for them. However, at 15% of the total, that tranche was quite a bit smaller than the other two. The employee tranche, which accounted for just 0.4%, was 1.11 times subscribed. 

The deal was arranged by Goldman Sachs, ICICI Securities, J.P. Morgan and SBI Capital Markets.