Deccan Aviation prices IPO above bottom of reduced price range

Indian low cost airline raises $79.4 million and sees quality of investors improving after three extra days of bookbuilding.
IndiaÆs Deccan Aviation - which last week extended the subscription period for its initial public offering by three days after lukewarm demand - has fixed the price at Rs148 per share to raise a total of Rs3.63 billion ($79.4 million).

According to sources, the price was set Rs2 above the bottom of the price range, which was lowered to Rs146 from Rs150 when the offer period was extended as Indian regulations do not allow the subscription period to be extended without a reason.

The National Stock Exchange website showed the three extra days lifted the coverage ratio of the IPO only marginally to 1.23 times from 1.1 times at the time of the original close last Tuesday (May 23). However, the sources said the additional time had helped improve the quality of the order book as it had allowed some names believed to have been initially called in to boost the numbers to be replaced by real-demand investors.

The bookbuilding was extended by bookrunners Enam Financial Consultants and ICICI Securities to Friday May 26 after a number of investors said they hadnÆt had time to focus on the offering since it coincided with a sharp correction in the Indian stock market.

Investors who had already submitted price limit orders had the opportunity to change those to account for the lower price range, but according to one source familiar with the order book, very few of the original investors decided to do. Consequently, the deal was covered at Rs150, they say.

ôThe price was fixed below Rs150 because the issuer wanted to leave a little more on the table given the market environment. The company didnÆt want to price at the very bottom though, as it might give the impression that the book wasnÆt covered at the original price range,ö the source says.

According to the NSE website data, the amount of shares subscribed for with a price limit of Rs150 amounted to 29.80 million, which was only marginally below the total subscription of 30.14 million shares at the bottom of the range.

The company, which is the operator of Indian low cost airline Air Deccan, offered a total of 24.546 million new shares, or 25% of its issued share capital, at a price between Rs146 and Rs175. Of the total, 50% went to qualified institutional buyers, 15% to non-institutional investors, including corporates and high net-worth individuals, and the remaining 35% to retail investors.

At the end of the extended offering period, the coverage ratio of the QIB tranche had improved to 1.09 times from 0.99 times three days earlier, although foreign institutional investors had reduced their combined bid to 6.3 million shares from 7.6 million shares as of last Tuesday. The subscription ratio for the retail tranche increased to 1.46 times from 1.26 times.

The benchmark Sensex index, which fell 11.4% over the four trading days of the original bookbuilding period, showed signs of stabilizing during the additional three days and a 1.3% gain on Friday took it to a close at 10,809 points which was virtually flat versus last Tuesday.

Deccan Aviation has been in the red since it launched Air Deccan in August 2003, which made it easy for investors to discard the offer once the market started tumbling. IndiaÆs low-cost airline market is also highly competitive with no fewer than eight carriers fighting for passengers, often through cut-throat prices.

However, the no frills airline had a 14% market share of IndiaÆs aviation market in February and analysts expect it to turn profitable in the 2007/2008 financial year.

Deccan plans to spend about Rs1.33 billion of its net proceeds (about one third) to repay debt, while the remainder will be split on setting up a training centre, a hangar for maintenance checks at Chennai airport, infrastructure at various airports and for marketing.
¬ Haymarket Media Limited. All rights reserved.
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