This left MundraÆs Rs17.71 billion ($450 million) IPO close to 116 times covered and removed some of the concerns that it would be difficult to do sizeable transactions without the participation of hedge funds. The investment activities of the latter group have been seriously curtailed after the Indian stockmarket regulator last month imposed restrictions on foreigners investing in the Indian stock market through the use of so-called participatory notes, or P-notes.
Hedge funds that are not registered in India cannot invest directly in the stockmarket and have been using P-notes extensively to gain exposure to this market. One market participant notes that on a typical IPO, 40%-50% of the demand from international investors come from P-notes. Many of the hedge funds have now applied for the necessary registration, but it is expected to take some time before they will be back in the swing of things again.
The Mundra deal shows that the pool of available capital is certainly deep enough to fill the hole left by these hedge funds. According to the National Stock Exchange website, the portion of the offering earmarked for qualified institutional buyers, which accounts for 60% after removing the 150,000-share employee tranche, attracted orders for 159.6 times the shares available.
The 10% tranche for non-institutional investors, which include high-net-worth individuals, was 156.4 times covered, while the 30% retail tranche was 16.2 times subscribed.
ôThe scale of the demand is surprising, especially in light of the P-note drama,ö says a source. ôIn the end that didn't have a significant impact on overall demand...orders came from everywhere.ö
While this is somewhat difficult to judge in India as one P-note issue can be bought by multiple investors, bankers close to the deal estimate that more than 500 institutional investors bought into the deal.
As a result of the overwhelming response, sources say the price will be fixed at the top of the Rs400 to Rs440 range, allowing the company to raise the full $450 million that it sought from the offering. The entire offering accounted for 10% of MundraÆs enlarged share capital. DSP Merrill Lynch, Enam, JM Financial, SBI Capital Markets and SSKI Corporate Finance were the joint bookrunners.
Mundra is the first private sector ports asset to go public in India, which explains part of the hype surrounding the IPO. On top of that it also owns a large parcel of land surrounding the port which it will develop into a special economic zone, or SEZ. The proximity to the port should help attract quality industries to this new economic zone, observers say.
Mundra is a ports authority responsible for the operations of an entire port rather than separate terminals within it, which means there are few suitable comparables. Observers say the valuation was reasonable, however. At the top of the price range, the company is valued on par with the an estimated pre-money net asset value of $4 billion.
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