Indian companies tap the market for $700 million

Tata Steel sells $500 million worth of GDRs, while Indiabulls Financial Services raises $200 million from a QIP and Suzlon attempts a $100 million GDR sale.

In terms of number of deals, it wasn't quite as busy as on June 29 when six Indian companies launched follow-on share sales, but the combined size of the three Indian deals in the market last night was on the other hand quite large. Together they were attempting to raise at least $700 million, and including an ambitious upsize option flagged by Tata Steel on its offering, the total proceeds could have increased to above $1 billion.

But the three Indian companies were also competing for investors' attention with Chinese coking coal producer Fushan International Energy Group, which together with its vice chairman sold $339 million worth of shares (based on the expected price), and Taiwan's Shin Kong Financial Holding, which launched a $300 million global depositary receipt offering that is due to price tomorrow.

Market watchers say the renewed confidence in the Indian stock market - the benchmark Sensex index has gained 13% over the past week - is obviously contributing to the appetite for new capital. Significantly, this has also helped to lift market prices above the regulated floor prices again and thus made it possible for the issuers to sell shares at a discount. One banker also noted that many Indian companies are approaching a black-out period ahead of their first quarter earnings, during which they will not be able to sell new shares, and that may have added to the urgency to grab the window of opportunity as soon as it opened up.

Certainly, the fact that metals and mining company Sterlite Industries was able to raise $1.5 billion from a follow-on sale of American depositary receipts last week, did suggest that international investors are still keen to buy Indian stocks.

Aside from Tata Steel, the other two companies in the market last night were Indiabulls Financial Services and wind turbine manufacturer Suzlon Energy. Tata Steel's GDR was by far the largest of the three with a base size of $400 million and an upsize option of $350 million, while Indiabulls was seeking $200 million from a qualified institutional placement and Suzlon was attempting to raise $100 million from a GDR.

Suzlon and Tata Steel both launched quite late in the evening and Suzlon will keep its books open this morning to allow Asian investors a chance to participate. The deal is offered at a fixed price corresponding to Rs89.55 per common share, which equals a 4.9% discount to yesterday's closing price of Rs94.20. Each GDR is equal to four India-listed common shares. The offering is arranged by Citi, Credit Suisse and Deutsche Bank.

Not too surprisingly, Tata Steel wasn't able to use its entire upsize option - which would have increased the deal size by close to 90% - but demand was strong enough that it was able to boost the offering by $100 million for a total deal size of $500 million. The money will be used to pay down existing debt.

This deal too was done at a fixed price corresponding to Rs370.20 per common share, which was equal to the floor price and represented a 5.4% discount to yesterday's close on India's National Stock Exchange. Each GDR is equal to one common share and the final deal size suggest that the company needed to issue about 65.4 million GDRs backed by new shares, or approximately 9% of its outstanding share capital.

Tata Steel kept the order book open until about 2.15 this morning Hong Kong time, by which time it was said to be comfortably covered including the upsize portion. Relative to its size though, the number of participating accounts was quite small at just about 40, which suggests that investors bought more than $12 million worth of shares each on average. The deal wasn't open to onshore US investors, but the support was said to have been strong from both Asia and Europe, as well as from offshore US accounts.

The Tata Steel transaction was jointly arranged by Citi, Goldman Sachs, J.P. Morgan and UBS.

Indiabulls Financial Services, which offers a variety of financial services, including retail brokerage, consumer loans and insurance, was the first of the three Indian companies to launch its deal last night, and market participants say this likely contributed to the quicker execution as potential investors were not yet distracted by any other offerings. In terms of efficiency it may also have helped that this deal had only one bookrunner, compared with Suzlon's three and Tata Steel's four.

The company kept its order books open for just over an hour after the launch at around 6.15pm Hong Kong time, but according to a source, the deal was still multiple times covered by a mixture of global financial funds, India-dedicated funds and hedge funds. Because it was a QIP the number of accounts was limited to 49.

Like the other two, Indiabulls offered the new shares at a fixed price, in this case Rs171 apiece, which corresponded to a 7.2% discount to yesterday's NSE close of Rs184.35. At the total deal size of $200 million, this means the company issued approximately 56.14 million new shares, or about 22% of its pre-deal share capital. Morgan Stanley was the sole bookrunner.

The QIP came on the back of a 22% rally in Indiabulls' share price in the previous five sessions and while it has retreated somewhat from its highs in May the stock is still up 127% from its 2009 low in early March.

¬ Haymarket Media Limited. All rights reserved.
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