Aptech stays the course

Indian computer training and software company Aptech has completed its first overseas share sale and taken a realistic view of what was achievable in the circumstances.

The combined impact of global volatility in the tech sector, sharp drops on India's stock exchanges and the poor secondary market performance of virtually all Indian overseas share sales this year formed an unenviable backdrop to the pricing of Aptech's first international share sale in San Fransisco this Monday.

Since the Indian computer training and software company was also raising funds in anticipation of a forthcoming acquisition opportunity, postponement was not an option that it countenanced lightly. Under the lead management of bookrunner Morgan Stanley Dean Witter, it consequently took a highly pragmatic of market circumstances, bowing to investors' desire for a significant discount to its local share price.

Raising a fixed dollar amount of $75 million, the company issued 10.45 million global depositary shares (GDS), with one unit equalling half an ordinary share. There is also a 1.56 million unit greenshoe. Pricing at $7.175 per unit represented a 10.8% discount to the stock's close on the National Stock Exchange and a 13.5% discount to its close on the Mumbai stock exchange.

With Credit Lyonnais and Jardine Fleming as co-leads and ABN Amro as co-manager, gross fees were 3.5%.

Bankers report that an order book totalling just over 40 accounts was split 31.9% Asia, 43.4% Europe and 24.7% US. Of this amount, most were said to comprise tier-one global accounts, which were in part impressed by the management's performance during roadshows and in part more inclined to hold the stock following its recent MSCI inclusion.

"It was pretty much a heroic effort on the company's part to successfully complete this deal considering all that was going on around it," says one banker. "It was a real tribute to the management team and the quality of the one-on-one meetings."

Markets in free-fall

As the company wrapped up roadshows at the end of last week, the Indian stock markets suddenly went into free-fall after the Reserve Bank of India increased its key bank rate from 7% to 8% in an effort to halt a further slide in the rupee. Having already fallen steadily for seven consecutive days, the whole market plunged on Monday over concerns about the impact of the rate rise on corporate profitability.

The National Stock Exchange plunged 5.7% and the Mumbai Stock Exchange by 6.2%. In a wider reflection of global tech volatility Indian software companies were the hardest hit, with Wipro falling 10.2%, Infosys 6.5% and Aptech 12.9%.

At this point, bankers comment, the book still held together, although a couple of accounts fell by the wayside and a few more that might have been picked up in the final few hours failed to materialize. Investors were also said to be concerned about the poor performance of previous global depositary receipt (GDR) and American depositary receipt (ADR) offerings from the sub-continent.

At one end of the scale, software company Satyam Infoway had priced a $130 million ADR at the height of tech fever in February, at a 9.24% premium to a closing average. This was followed by software developer SSI in March, with an $87 million GDR at a 7.8% premium to spot, and then ICICI Bank at a 5.5% premium to a five-day average later the same month and Silverline Technologies at a 9 % discount to spot in June.

Since then, the deals with the most aggressive initial pricing have been the worst performers. Satyam, for example, is now down about 76% from its issue price and SSI, which never traded above issue price, is about 60% lower. Silverline has fared slightly better, suffering a 24% drop, while ICICI Bank has proved the exception, maintaining an 8% premium.

As one banker from the syndicate concludes: "There is expected to be further volatility in the Indian tech sector, so the last thing the company could have done would have been to push for overly tight price and watch secondary trading plummet. That the deal was able to close speaks for itself."

Aptech, which has set up training centres in 27 countries, has taught more than one million students to use computers. Since 1998 it has also branched out into software development with this side of the business now contributing about 30% of revenues and growing by about 135% a quarter.

This time round, it chose a GDR format because it wanted to get a deal out in the market. In the longer term it is also looking to reconcile its accounts to US Generally Accepted Accounting Principles (GAAP) and has appointed Deloitte Touche Tohmatsu as adviser.

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