India has become one of the bright spots in the relatively slow Asia equity capital markets since late February following the completion of four block trades within a period of three weeks.
The latest deals to hit the market are the Indian government’s divestment of a 5% stake in Container Corporation of India (Concor) and a selldown of shares in Bangalore-based technology consulting company Infosys by two of its co-founders. Both deals were completed on Thursday.
Both were brought to the market after the government raised $732 million from the sale of a 5% stake in India’s largest power producer NTPC as well as a $300 million block trade of Kotak Mahindra shares late last month.
Three of the four deals (excluding NTPC) were executed amid a strong rally for the BSE Sensex after it hit the second lowest point of the year on February 25. The benchmark index posted a nearly 8% gain in the following three-week period as investor sentiment improved after the Modi government announced a fiscally prudent budget.
For the government, such restoration of investor confidence is badly needed if it is to meet its divestment target of Rs300 billion ($5.3 billion) for the 2015/16 fiscal year, which ends in March. So far it has only been able to raise Rs195 billion through stake sales in six state-owned enterprises including Indian Oil Corporation and NTPC.
As such it is widely expected that the government will attempt to sell stakes in other state-owned companies in the remaining weeks. According to the department of disinvestment, the five state-owned companies that remain on the block include Oil & Natural Gas Corp (ONGC), Bharat Heavy Electricals, National Aluminum Corp, Hindustan Copper and National Hydroelectric Power Corp.
Among them, the biggest deal would be a 5% divestment in ONGC, which could generate $1.3 billion in proceeds based on Thursday’s close. But with ONGC trading near its five-year low, it might all come down to whether the government is willing to sell at such low levels.
On Tuesday, the government launched the sale of a 5% stake in Concor at a floor price of Rs1,195, representing a 2.6% discount to the stock’s last close. The trade was structured as an offer for sale and was opened on Wednesday for institutional investors and Thursday for retail participants.
Data from the National Stock Exchange show that the institutional tranche, which accounted for 80% of the total deal size, was 2.02 times subscribed at a final price of Rs1,196.2 per share. Given that Concor closed at Rs1,195 on Wednesday, investors who took shares through the OFS would have paid slight premium over secondary market price.
The retail tranche was 2.84 covered by the end of Thursday and the offer price was finalized at Rs1,163.8, which represents a 2.7% to the floor price and a slight premium to Concor’s Thursday close at Rs1,163.4.
Concor's stake sale raised total proceeds of $174 million for the government, or roughly 3.3% of its divestment target this year.
Citigroup, Kotak Securities and ICICI Securities were lead managers.
Two co-founders of Infosys managed to catch a short window to sell a combined 7.5 million shares in the company before the Indian market opened on Thursday.
Shortly after trading ended for Infosys’ American Depositary Receipts in New York, co-founders S Gopalakrishnan and S D Shibulal launched the trade at Rs1,149 to Rs1,178.5 per share. Final price was set at Rs1,149, representing a 2.5% discount to the stock’s Wednesday close.
In total the share sale raised $128 million for the two sellers.
There has not been much difficulty to complete a deal of that size because Infosys is one of the most liquid names in India and the deal equates to only around two days’ trading volume, one source familiar with the situation told FinanceAsia.
Citi was sole bookrunner of the block trade.
Falling short of last year
Year-to-date, India’s equity deal volume is $1.39 billion compared to $6.74 billion in the same period last year, although 2015 was an outstanding year for India’s equity capital markets with the completion of a number of jumbo deals.
In January, the government raised $3.6 billion from the sale of a 10% stake in Coal India in the country’s largest block trade ever. That was followed by another $3.2 billion trade by Japanese pharmaceuticals giant Daiichi Sankyo as it sold its entire 8.9% stake in India’s Sun Pharmaceuticals.
The possibility of similar jumbo deals happening this year is low given that the government has revised its divestment targets downward to Rs360 billion from Rs695 billion last year.
As a net oil importer, India has benefited from the 30% decline in global crude oil prices last year. So the recent rebound in oil price may continue to put Indian equities under pressure.
Despite recent rallies the BSE Sensex is still 1.1% below the lowest point of last year.