Indian infrastructure company GMR Infrastructure, which on Monday night was tapping the market for $500 million with a qualified institutional placement (QIP), decided on Tuesday to pull the transaction. With six other Indian deals in the market, there was too much competition for capital, which left GMR unable to generate sufficient demand.
It is highly unusual for seven deals to launch in the same market on the same night. As one of the first deals to launch, GMR was at a disadvantage because no-one could predict that so many other companies would also go to market. Even the banks that worked on the QIPs on Monday did not know that so many deals were going to go ahead, said one source.
A smaller transaction size was considered, but it failed to meet GMR's capital requirements. Another issue with printing a smaller ticket is that it would use up the company's QIP approval and it would be unable to launch another placement for six months. It was therefore decided to wait for a more suitable time to start a large-scale deal.
The company might have to wait a while because its shares were hit as if the placement were completed. At the close of trading on Tuesday, the shares in the company were down by 8.5% to Rs141.85, dropping by a further 1.2% yesterday, to Rs140.10. To put this into context, the QIP went out with a price of Rs142.25, an 8.3% discount to Monday's price of Rs155.15.
One source commented that there were too many banks working on the placement, which could have led to the deal launching when perhaps it should have waited. The international banks on the deal were J.P. Morgan, Morgan Stanley and UBS. On the domestic front there was Access Bank, Enam, India Securities and Kotak.
Not all of Monday's deals ended like GMR's placement, however. Real estate company Housing Development and Infrastructure Ltd (HDIL) managed to accumulate enough demand to upsize its deal to $350 million from a base size of $300 million. One source said that if there weren't so many deals in the market, it could have been upsized even more.
HDIL was the only deal on Monday to go out with a range instead of a fixed price: the shares were on offer at between Rs240 and Rs250 each, translating to a discount range of between 5.7% and 9.5% to Monday's close of Rs265.05. The deal priced at the bottom of the range, at Rs240, giving the widest discount. On Tuesday, the shares were down by 12% to Rs233.70, to recover by 1.2% yesterday.
The banks behind the HDIL deal were J.P. Morgan, Macquarie and Kotak.
There are a couple of reasons why so many deals launched on Monday. Many market observers point to the success of the Unitech QIP last Friday -- it initially tried to raise $275 million, only to upsize the deal to $575 million on the back of strong demand. Another factor is that many of the companies had recently received QIP approval and they wanted to use it before the Indian budget next Monday. Trading sessions immediately preceding the budget are often associated with added uncertainty, which is not the best time to start a deal.
Investors were somewhat disappointed by the mayhem on Monday. There were many long-only funds that were interested in several of the QIPs, said one source, but since they all happened at the same time, investors were forced to become choosy and limit themselves to just one or two companies.