Godrej Consumer Products upsizes QIP to $115 million

Godrej Consumer Products became the second Indian company this week to raise fresh capital from a qualified institutional placement (QIP), showing that investors are still keen to support issuers that are gearing up for further growth.

The Indian producer of personal and homecare products completed the share sale on Tuesday evening after keeping the deal open for nearly 24 hours, meaning investors committed before the tumble in US equity markets on Tuesday and Wednesday. However, Asian markets were already weak on Tuesday -- the Indian benchmark index fell 1.4% -- and by the time the order books closed, Godrej's share price had in fact slipped below the offering price, meaning the deal was done at a premium versus the latest market price. India may be known for its tight discounts, but a premium is definitely unusual.

Even so, HSBC and Kotak Mahindra, which acted as the joint bookrunners, were able to compile enough orders to use part of the upsize option and increase the deal to Rs5.3 billion ($115 million) from about Rs4 billion ($87 million). According to the initial term sheet, there was an option to increase the size to as much as $129 million.

The shares were offered at a fixed price of Rs345 apiece, which was equal to the floor price as determined by the Indian regulators. At the time of launch, the offer price represented a 1.0% discount versus Monday's closing price of Rs348.65. However, after a 1.4% drop in Godrej's share price to Rs343.90 on Tuesday, that discount turned into a 0.3% premium.

It should be noted, however, that Godrej's share price has risen by about 116% in the past 12 months and, on Monday, closed only 3.5% below the all-time high of Rs361.15 hit in early June.

Part of the attraction, aside from the company's leading market position and well-established brand name, was the firm's successful growth-by-acquisition strategy. It recently bought the remaining 51% stake in Godrej Sara Lee, which sells home insecticide products in India and globally, at a cost of €185 million ($226 million), to become the leading supplier of such products in Asia ex-Japan. The proceeds raised from the QIP will be used towards the refinancing of a bridge loan taken up in connection with that acquisition.

Similar to Infrastructure Development Finance Company (IDFC), which raised $575 million from a QIP that was also launched on Monday evening but completed before the Indian market opened on Tuesday, the Godrej bookrunners had good indications of buying interest before launch. And indeed, the deal was about 60% covered shortly after the books opened, providing good momentum and giving other investors the confidence to come in as well, even though the stock isn't that liquid. After the upsize, the deal accounted for about 30 days' worth of trading volume, based on the daily average in the past three months.

The company sold approximately 15.4 million new shares, equal to 5% of the existing share capital.

According to a source, the deal saw good interest from long-only investors and about 40% of the demand came for foreign institutional investors in Asia and Europe. As a Reg-S transaction, the deal wasn't open to onshore US investors. The remaining 60% of the demand was generated by domestic Indian accounts.

Godrej's share price gained a modest 0.2% on Wednesday, but stayed below the placement price. Yesterday it fell by a similar amount to close at Rs 344.10.