Adani Enterprises QIP increased to $850 million

The deal is upsized from $600 million as the Indian conglomerate attracts more than $1 billion of demand from primarily long-only investors.

Adani Enterprises, the flagship company of one of India's largest business groups, has raised $850 million from an upsized qualified institutional placement (QIP) which it said it will use to fund capital expenditure, repay outstanding loans and for other corporate purposes. More specifically, analysts believe part of the money will go towards the funding and development of various coal mining projects -- a part of the business that investors like because of its high growth potential.

Aside from the coal mining and trading business, Adani Enterprises is also active within oil and gas exploration, gas distribution, power generation (through its listed subsidiary Adani Power), agro-processing, real estate development and commodities trading.

Launched after the close of trading on Tuesday and priced yesterday morning, this was the second sizeable QIP out of India in just three weeks, suggesting that investors are still keen to support the Indian growth story -- even at thin discounts. At the end of June, Infrastructure Development Finance Company (IDFC) raised $575 million from a deal that was also upsized from an initial $500 million.

Adani launched the offer at $600 million with the potential to upsize by $250 million and, after attracting more than $1 billion of demand, the upsize option was exercised in full. As is often the case with Indian QIPs that have to adhere to a regulatory floor price, the deal was launched at a fixed price of Rs536.15, just above the floor price of Rs536.14 and at a modest discount of 1.4% versus Tuesday's closing price of Rs543.50 on the National Stock Exchange.

At the enlarged size, the deal comprised 75 million shares, which accounted for about 14% of the existing share capital and close to 80 days' worth of trading, based on the daily average turnover in the past three months.

Investor interest was boosted on a two-week non-deal roadshow during which the management was able to spell out its expansion plans and growth projections. It met with investors in Asia, Australia, Europe and the US and, according to sources, US investors were particularly keen to participate. But there was also good demand from Europe and from domestic accounts. The deal was said to have been oversubscribed already on Tuesday evening, but was kept open until 8am India time yesterday, as indicated on the term sheet, to give Asian investors a proper chance to participate. 

Most of the buyers were high-quality long-only funds and included both existing and new investors. Many of the orders were quite chunky and given that QIPs can only be placed with a maximum of 49 accounts (including sub-accounts), the eight bookrunners had a tough job, initially of making sure the number of orders didn't exceed the regulatory limit and then of allocating the deal.

The excess demand led to follow-though buying yesterday and the share price closed 0.9% higher at Rs548.50, slightly outperforming the benchmark Bombay Sensex index which added 0.6%.

This was the second time this year that Adani Enterprises raised new equity, having also completed a $375 million rights issue in April. However, given that the money is being used to fund future growth and in light of the management's track record when it comes to delivering on its promises, investors were supposedly not concerned about the fact that the company was returning to the market so soon.

The share price has risen about 19% since early April and the stock is up 75% from its 12-month low in September last year.

The QIP was jointly arranged by Bank of America Merrill Lynch, Citi, Enam Securities, IDFC Capital, ICICI Securities, Kotak Mahindra, Morgan Stanley and UBS.

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