Cipla raises $170 million from first-ever GDR issue

Inidan drug maker prices deal at low end of tight range in wake of 63% share price surge this year.
IndiaÆs second largest drug maker in terms of sales, Cipla Ltd, has raised $170 million from its first ever sale of Global Depositary Receipts. The CLSA and Kotak Mahindra led deal is said to have met with reasonable demand despite a 63% surge in the share price already this year.

The sharp share price spike is also said to have caused price sensitivity, which resulted in a tight marketing range and small order book. The GDRs were sold to 14 accounts, of which six already held shares in the company and wanted to prevent dilution. At the final size the order book was 1.25 times covered, according to a source familiar with the deal.

Cipla went out on Tuesday (April 11) with an offer to sell $150 million to $200 million worth of GDRs at a price range which corresponded to Rs690 to Rs700 per share ($15.45-$15.68), or a 3.4% to 4.7% discount to MondayÆs close of Rs724.30. (The Indian market was closed for a holiday on Tuesday).

The GDRs were priced in the early hours of Wednesday morning at $15.39 each, which was equivalent to Rs690 per share, and a 4.7% discount.

Based on the demand, the deal size was fixed just below the mid-point of the offered range, which meant the company sold about 11.05 million GDRs û each equivalent to one common share - or 3.7% of its existing issued share capital.

About 65% of the offer was bought by long-only funds, while the rest was taken up by hedge funds, according to the source. Asian investors took about 68% of the deal, European accounts bought 28% and the remaining 4% went to the United States. The shares will be listed in Luxembourg.

ôThis is a big stock that is well-covered and the company has a good business model and a good track record. At these levels it is obviously a valuation issue as well, but if you are comfortable that the Indian market will continue to go up there are plenty of reasons to buy,ö one observer says.

CiplaÆs growth story is primarily about the manufacturing and export of generic drugs, including its copy of Tamiflu which has attracted a lot of attention in recent months after an outbreak of bird flu in poultry was detected in India. It is also a strong player within drugs against AIDS and asthma.

So far, the companyÆs chosen business model has been to focus on organic growth and to work with local partners overseas û it has about 200 partners in 160 countries û but going forward it may also look to make acquisitions outside of India to get its hands on new technology and specialty products, joint managing director Amar Lulla said in February.

The proceeds from the GDR sale will partly go towards building an ôacquisition war chest,ö partly towards capital expenditures and general working capital.

CiplaÆs share price, which reached a record high of Rs761.80 on April 7, has also been underpinned by the announcement a couple of months ago of a three-for-two bonus share issue with an April 25 record date.

In the wake of the share sale yesterday the stock dropped below the GDR issue price and closed 5.2% lower at Rs686.45. However, this may not have been solely because of the deal as the entire market fell 2.6% in its steepest one-day drop in seven months. Traders said the slide was partly caused by news that foreign investors had been net sellers of Indian stocks for a second straight day last Friday - a possible signal that they are starting to view the market as fully valued.
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