Ballapur Industries completes debut international equity offering

India''s largest paper manufacturer raises $80 million from a GDR and convertible bond offering.

CLSA and JPMorgan completed the year's third international equity offering out of India yesterday (Thursday) with a combined $35 million GDR and $45 million privately-placed convertible for Ballapur Industries.

The GDR saw 4.23 million units priced at a 2.1% discount to the stock's Rs76.65 close, with one unit equating to five shares. The deal was not widely marketed and placed with just 15 investors.

Books had earlier closed two times covered and it is estimated that about 15% to 20% of the deal was placed with existing investors. By geography about 60% went to Asian based funds, 20% to Europe and 20% to the US.

The convertible was placed with three development funds - the IFC, Holland's FMO and Germany's DEG. Each one took $15 million of paper.

Full terms of the convertible are not being made public. However, the deal has been structured with a 15% conversion premium to the GDR price and starts to redeem from December 2008 in six semi annual installments.

Ahead of both transactions, Ballapur Industries had a 45% freefloat. The GDR will dilute existing investors by about 13% and on full conversion, the convertible will dilute them by a further 14%. The major shareholder is the Thapar family.

Year-to-date the stock is up 78%, but investors are said to have liked the deal because the company is still trading at a relatively undemanding valuation. Since pre-marketing began just over a week ago, it has also outperformed the overall market by 6.6%. At a current P/E of 8.2 times 2004 earnings (year-end June), the company is trading at a steeper than usual discount to the 16.4 times average of the Sensex 30 Index.

Ballapur Industries operates at the high end of the domestic paper market - coated paper and photocopying paper - and its profits are closely tied to GDP growth. Proceeds are being used to pay down debt.

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