gdrs-in-reliance-communications-shift-hands

GDRs in Reliance Communications shift hands

An undisclosed shareholder sells $163.3 million worth of GDRs at a 10% discount to the price of the underlying shares, while in Singapore Ezra Holdings raises $63 million from the sale of new shares.

India yesterday saw another placement in the wake of Monday's massive stockmarket gains, which have clearly pushed a number of stocks back to levels where companies are starting to feel comfortable to raise new equity and investors are happy to secure some profit. This time it was an existing institutional shareholder who took the opportunity to offload its holdings in mobile operator Reliance Communications.

The UBS-led deal raised $163.3 million and was launched and completed before the Indian market opened.

Unusually for a secondary share placement, the deal was made up of Luxembourg-listed global depositary receipts. However, since the GDRs are highly illiquid with a price that doesn't necessarily correspond to the underlying common shares on a day-to-day basis, the offer price was based on the latest close of the company's India-listed shares converted into dollars.   

Using Tuesday's close of Rs316.25 on the National Stock Exchange of India, the reference price per GDR ended up at $6.66. Based on this, the GDRs were offered in a range between $5.99 and $6.39, or at a discount of 4% to 10%.

The undisclosed Europe-based seller offered 27.27 million GDRs, which translated into 1.3% of the outstanding share capital. One GDR is equal to one common share.

The price was fixed at the bottom of the range for the maximum 10% discount, which was no great surprise in light of the sharp run-up in the share price this week and the fact that there was a limited time to complete the deal before the market opened.

The illiquid nature of the GDRs also means most of the buyers are likely to convert the GDRs into common shares, which will take about three days and increases the risk that the price could move significantly lower before they have a chance to sell the shares. To help reduce that risk, the settlement of yesterday's deal will take place two days after the trade, as opposed to the T+3 settlement that is typically used for GDRs.

A source said the deal was placed with a mixture of fundamental, long-only accounts and hedge funds and noted that the investors were comfortable with buying little-traded GDRs because Reliance Communications is a big company and a well-known name. This may have been reinforced by the fact that a large portion of the orders came from India-based accounts.

The timing of the launch, just 2.5 hours before the opening of trading, also suggests that the bookrunners had a good enough idea of who the potential buyers may be to make them confident that they would be able to place the securities in time.

Reliance Communications saw its share price jump 24.7% on Monday and a further 9.1% on Tuesday amid the euphoria that swept Indian financial markets after a stellar election result by the Congress Party-led coalition. The party's greater-than-anticipated share of the votes, which will see prime minister Manmohan Singh returned for a second term, pushed the Bombay Sensex index 17.2% higher on Monday.

The two-day jump in Reliance Communications' share price saw the mobile operator surpass its January levels for a new 2009 high, but even so, the stock is still well below the Rs600 level where it was trading this time last year. The share price fell 2.2% to Rs309.2 yesterday after the placement, but given that the GDR placement price of $5.99 would translate into a price of Rs284.40 -- this wasn't a bad outcome.

This was the second Indian equity deal in the wake of the election-driven rally and the fifth since property developer Unitech re-opened the market with a $325 million qualified institutional placement in mid-April. On May 8, Singapore's DBS Group sold its entire 2.7% stake in India's HDFC Bank for $265 million through a placement, and last week the founders of DFL Limited raised $783 million from a partial sell-down of their stake in the property developer. On Monday this week, Indiabulls Real Estate raised $545 million from a QIP on the back of a 38.5% gain in the share price earlier in the day.

And Indian companies aren't the only ones that are taking advantage of the improving share price levels. Hong Kong-listed issuers have been getting more active over the past month and last night, Singapore-listed marine services company Ezra Holdings raised S$92 million ($63 million) from an upsized placement arranged by Credit Suisse.

The company offered 65 million new shares with the potential to sell an additional 19 million, should the demand prove strong enough. Sources said the full size was covered, but in the end, Credit Suisse chose to be somewhat conservative and exercise the upsize option only in part. As a result, the company sold 78 million shares or 13.3% of the company.

The shares were offered at a price between S$1.18 and S$1.22, which represented a discount of 6.2% to 9.2% versus yesterday's closing price of S$1.30. It was priced marginally off the bottom at S$1.185 to keep it within a 10% discount versus yesterday's volume-weighted average price, which is a Singapore Exchange rule. To price any higher than that would have been difficult, however, as many orders were said to have contained price limits.

Still, many investors welcomed the chance to buy into this fast-growing small-cap, which is a rare issuer in the equity capital markets. At the final tally, the order book included about 25 investors, with good interest both from Singapore and Europe.

Ezra's share price has more than doubled in the past couple of months from just below 50 Singapore cents in early March to S$1.30 yesterday. However, the stock is still down about 55% from its year-ago level of around S$2.95.

The company said it will use the proceeds to repay debt and to fund capital expenditure, including the possible acquisition of new ships. A portion may also go towards M&A activity, should the opportunities arise.

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