Adani Power has raised Rp30.2 billion ($625.8 million) ahead of its listing on August 17, according to a term sheet released yesterday. This is the first IPO of size to be completed in India since Reliance Power's $3 billion deal in January last year.
A total of 301 million shares were on offer, which were priced at Rs100 each, the top of an indicative range that that started at Rs90. The offering represents 13.8% of the fully diluted post-issue equity share capital.
High levels of demand helped push the price to the top. The overall book was covered 21.6 times, but the three sub-tranches had different coverage ratios: the 60% allocated for institutional investors was 39.4 times covered; the 20% for high-net-worth investors was 8.6 times covered; and the remaining 20% for retail investors was 20.9 times covered. Around 30% of the investors in the institutional offering were Indian. The rest went to international accounts, with Asian accounts taking the largest chunk, followed by European and then US investors.
Adani Power is part of the Adani Group, a large Indian conglomerate. It is a power company that currently has an operational capacity of around 330MW. It plans to expand this to around 6,600MW by mid-2012 by opening coal power plants in Gujarat and Maharashtra, the two states with the largest power shortages in India.
Adani Power's business operations are well placed to efficiently supply power. It has a long-term agreement with Adani Enterprises, its holding company, to supply all the coal it needs by importing from Indonesia, and its power projects also have good access to fuel and water.
The strong interest in Adani Power's IPO is significant for several reasons. For a start, it recreates the benchmark valuation for private sector power companies in India, which market observers say will encourage other companies to go to market. The next company to list is hydropower producer, NHPC, which is expected to launch an IPO on Friday. And it's not just power companies that are expected to take advantage of the buoyant markets -- there are also a number of property developers that are keen to list.
If the general economic environment is anything to go by, now could be a good time to list. In a note published yesterday, Morgan Stanley said that second-quarter earnings in India beat expectations. The companies in the bank's coverage universe reported a 7% increase in aggregate earnings year-on-year, much higher than an estimated 1% drop. Energy was the best performing sector; net profit in the sector was up 38% year-on-year.
The high level of demand for Adani Power shares originating from retail investors -- there were 575,000 applications -- is another noteworthy aspect of the deal because it shows that individual investors have recovered their appetite for new paper. The deal also introduced the concept of anchor investors to India. Before the deal was launched last Monday, 30% of the tranche for institutional investors was sold to six large accounts on a discretionary basis.
Merrill Lynch was the global coordinator on the IPO. The bookrunning lead managers were ENAM, IDFC-SSKI, JM Financial, Kotak, Morgan Stanley, ICICI Securities and SBI Capital. Many of these banks have gained business from the recent resurgence in QIP deals. The next step will be to take market share in a reviving IPO market.