Indian deals suggest confidence is returning

An existing shareholder sells $422 million worth of shares in Tata Motors, while Exide Industries completes a $119 million QIP. Meanwhile, in Hong Kong, Zhongsheng prepares to start the bookbuilding for its recently withdrawn IPO of up to $1 billion.

In a further confirmation that confidence is returning to the region's equity markets, two deals were completed in India last night, raising a combined $541 million.

An existing shareholder sold Rs19.2 billion ($422 million) worth of shares in Tata Motors, while battery maker Exide Industries raised Rs5.4 billion ($119 million) of fresh capital from a qualified institutional placement. The investor response to both deals was solid and should help convince other issuers waiting in the wings to take the plunge.

And India isn't the only place where a firmer stockmarket is translating into renewed primary market activity. In Hong Kong, Far East Global Group, which provides building facade materials, including glass and curtain walls, started pre-marking yesterday for an initial public offering of about $100 million through sole bookrunner BOC International. And tomorrow, auto retailer Zhongsheng Group Holdings will, according to sources, launch the roadshow for its IPO of about $800 million to $1 billion that it called off after pre-marketing last week amid a failure to agree on a price that was workable in the current market environment. That deal is being run by BOCI, Morgan Stanley and UBS.

Back in India, the Tata Motors offering comprised 25.6 million shares, or a 5.3% stake in the company. The shares were offered in a range between Rs737.4 and Rs761.3, which equalled a discount of 4.4%-7.4% versus yesterday's closing price of Rs796.75 on the National Stock Exchange.

After a four-hour bookbuild that attracted about 50 investors, the deal was priced close to the mid-point at Rs750, resulting in a 5.9% discount. This is a large discount in a market where new share issues are bound by floor prices that typically don't allow the issuers to offer their shares at much more than 2%-3% below the market price.

The seller wasn't disclosed, but sources said it sold its entire stake in the company. Based on the number of shares offered this suggests that the seller really couldn't be any other than German car manufacturer Daimler. Indian media had earlier speculated that Daimler was looking to exit its investment in Tata Motors.

The sale comes as Tata Motors is trading near a two-year high of Rs813 that it reached last Thursday and follows a 480% gain in the past 12 months. The stock jumped 12.2% on Tuesday last week after the company said it had signed a memorandum of understanding with China's BYD Company to enter into a partnership to develop electric vehicles for the mainland market. Daimler is already a leader in the development of zero-emission vehicles, and through this agreement, will have an opportunity to accelerate the development of such vehicles in the largest auto market in the world.  

BYD has attracted a lot of attention globally since Warren Buffett invested $230 million in the company in September 2008. His Berkshire Hathaway currently owns just over 28% of the company's H-shares and 9.9% of the company as a whole.

A source said demand for the placement, which was led by Citi, came predominantly from India and the rest of Asia, with a few decent orders from the US as well. European investors remained largely absent. Overall, the deal was more than two times covered.

Aside from the wide (for India) discount, this is also a liquid stock that trades about $70 million in volume per day, which means the deal amounted to just six days' worth of trading. This would have made the deal seem relatively low risk to investors who are worried about being able to get out if the market turns sour again.

Meanwhile, Exide, which makes lead and electronic storage batteries for cars, railways, aircraft and power stations among other things, offered 50 million new shares, or 6.25% of its existing share capital, at a fixed price of Rs107.9 per share. The price was set just above the regulatory floor price of Rs107.86 and resulted in a discount of 2.4% versus yesterday's closing price of Rs110.5 on the National Stock Exchange.

Exide's share price has more than tripled over the past 12 months and reached a 52-week high of Rs122.25 in early January. Analysts are generally positive about its prospects with 13 of the 17 analysts that follow the company recommending investors to buy. The other four have a "hold" recommendation on the stock.

There was no information available about the size or composition of the order book last night as the allocation was expected to be completed this morning, but sources said the deal was well covered. Bank of America Merrill Lynch, Enam, Morgan Stanley and UBS were joint bookrunners for that transaction.

¬ Haymarket Media Limited. All rights reserved.
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