DLF raises $341 million from sale of new shares

The deal is done ahead of a June deadline for Indian companies to meet a 25% free-float requirement and is expected to be followed by several others. Separately, Just Dial will launch its long-awaited IPO next week.
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The Ericsson Forum in Gurgaon is one of the many office buildings in India developed by DLF</div>
<div style="text-align: left;"> The Ericsson Forum in Gurgaon is one of the many office buildings in India developed by DLF</div>

Indian real estate developer DLF raised Rs18.63 billion ($341 million) from its sale of new shares earlier this week, after the company decided late last night to fix the price at Rs230 per share. The price was equal to the clearing price announced by the Indian exchanges earlier in the day and translated into a 4.9% discount to yesterday’s closing price of Rs241.75.

The deal is the largest among a series of Indian share sales this week, as issuers rush to meet a 25% free-float requirement by the June 3 deadline.

At the beginning of this week close to 100 companies still needed to take action to comply with the enforcement of the free-float requirement, according to bankers. However, most of these are very small and will have little impact on the market. Some may also opt for other ways than a direct share sale to meet the deadline, such as a bonus issue to minority shareholders, while others may choose to delist. The promoter of software developer Wipro set a precedent recently when it gained approval to transfer shares to a philanthropic trust that will count towards the free-float.

That said, bankers estimate that there could be 10-15 companies looking at completing a share sale of at least $50 million in the next two-and-a-half weeks, which could put pressure on the overall market. Luckily for the issuers, demand for Indian stocks is pretty strong right now and the two benchmark indices – the S&P BSE Sensex and the CNX Nifty – both closed at 2013 highs yesterday after gaining 2.5%.

But even so, the fact that the companies have to get these sales done means investors have the upper hand in terms of pricing and the sellers may have to accept deep discounts to the market price.

On Monday this week, Fortis Healthcare sold $59 million worth of shares at a price of Rs92 apiece, which translated into a 12.4% discount to the closing price on that same day.

As the largest real estate developer in India, DLF was in a somewhat better position. Its stock is liquid and the deal was large enough to attract the attention of international investors. Sources estimated that the majority of the demand came from international accounts, but as of yesterday there were no official data available on the break-down. It also helped that the shares on offer were new, meaning all the proceeds will go to the company. According to the issuing document DLF will use most of it to pay down debt and fund capital expenditures.

According to information on the websites of the two main Indian exchanges, the deal was 1.8 times covered across the indicative range of Rs222 to Rs233.

The exchanges said earlier yesterday that there was enough demand at Rs230 for the deal to clear at that price. However, it took until late last night for the company to decide that it would fix the selling price at that same level.

What seemed to complicate the issue was that some of the banks involved in the transaction had apparently been suggesting to investors while the order books were still open that the clearing price would be no more than Rs225. As a result, many investors had submitted orders around that level and were running the risk of missing out on receiving shares if the final price was fixed any higher than that.

When the one-day offer closed on Tuesday, a final price of Rs230 would have implied a minimal discount to the market price since DLF closed at Rs230.30 on that day. However, the share price gained 5% yesterday, which meant there was little reason for the company to fix the price any lower than it had to.

When the price range was first announced on Monday morning, it translated into a discount of between 1.7% and 6.3% versus last Friday’s close of Rs237.05.

Sources said the issuer was able to keep the discount fairly tight as one US-based fund in particular had agreed to buy a large chunk of the transaction before launch. There was no information of how large, but regulations state that no single investor is allowed to buy more than 25% of the deal. After the sale on Tuesday there were reports that several funds had put in orders for the maximum 25%.

In all, more than 40 accounts participated in the transaction, the sources said.

DLF sold approximately 81.02 million new shares through the so called institutional placement programme (IPP), which was put in place by the regulators early last year partly to help companies increase their free-float without having to worry about a adhering to a minimum floor price.

The IPP method is similar to the offer for sale (OFS) method that the Indian government has used for most of its recent sell-downs. The key difference is that while an OFS is used to sell existing shares, an IPP is used when the company want to issue new shares.

Like the OFS, the issuer can choose between using multiple clearing prices, in which case the sale will be similar to an auction, or a proportionate allocation at one clearing price. DLF chose the latter.

The new shares sold by DLF accounted for about 4.8% of the existing share capital and will increase the free-float to approximately 25% from 21.4%.

The share sales aimed at increasing the free-float continue today with an OFS in Linde India, a producer of industrial gases. The overseas promoter, which currently owns about 89.5%, is offering to sell a 14.5% stake at a minimum price of Rs230 per share. At that price, which equals an 8.5% discount to yesterday’s close, the sale will total about $52 million. Citi is acting as the sole bookrunner.

Oracle Financial Software has also announced that its promoter plans to reduce its stake by 5.3% through an OFS that could raise about $200 million. Other companies likely to hit the market in the next few weeks, according to sources, include Gillette India and Jet Airways.

Bank of America Merrill Lynch, Deutsche Bank, J.P. Morgan and Standard Chartered were joint global coordinators for the offering, while CLSA, HSBC, Kotak Mahindra and UBS joined them as bookrunners.

Meanwhile, Just Dial is finally getting ready to launch its long-awaited initial public offering, which is now set to raise between Rs8.14 billion and Rs9.48 billion ($151 million to $176 million).

The local search engine provider announced the price range on Monday morning and will open the order books for anchor investors on Friday. The IPO itself will run from Monday to Wednesday next week.

Citi and Morgan Stanley are the joint bookrunners.

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