Indian issuers grab small window to push out QIPs

Equity markets have been decidedly soft this week, but two Indian financial companies managed to squeeze in a qualified institutional placement (QIP) before the market opened yesterday, raising a combined $350 million.

Yes Bank, a private sector lender, raised $225 million from an upsized fixed price offering that came at a 1.35% discount versus Wednesday's close. And Shriram Transport Finance Company, which provides financing for the acquisition of second-hand commercial vehicles, tapped the market for $125 million at a 2.9% discount. Both companies were raising money to strengthen their tier-1 capital ratios.

These were the first QIPs of size in 2010 and given the collapse in US equities overnight they appear to have grabbed the smallest of windows to push out their deals. The Dow Jones industrial average index tumbled 2% in its largest one-day decline since October following President Obama's proposal to restrict the size and scope of business of the country's largest banks -- including a ban on proprietary trading. Goldman Sachs was off 4.1% despite releasing better-than-forecast fourth quarter results, and J.P. Morgan fell 6.6%.

This clearly doesn't bode well for today's trading in Asian stock markets, which were already weak on Thursday. In India, the benchmark Sensex index fell 2.4% and is now down 2.37% year-to-date. The long list of companies waiting in the wings for their share prices to move to a level where the QIP floor price leaves room for at least a slight discount versus the latest close, will now have to wait a bit longer.

Both Yes Bank and Shriram launched their deals late Wednesday evening Asia time and were marketed to investors in Europe and the US (Shriram only) as these markets were on a downward path. And when Asian investors were getting a chance to look at the deals before the Indian markets opened yesterday morning, the tone was quite pessimistic in Asia as well. However, in hindsight, the timing turned out to be quite savvy, given the collapse in US financial stocks some 12 hours later. Had they waited any longer, the window would have shut completely -- at least for now.

Yes Bank attracted the most interest of the two and was able to upsize the deal by 50% from $150 million to $225 million, making use of the entire upsize option that was flagged at launch. According to a source, one anchor investor, said to be a global institution, took half the deal, which clearly helped drive the momentum. The anchor order would also have made the management more comfortable to go ahead with the offering, even if the market conditions weren't ideal. Yes Bank had intended to bring this deal towards the end of last year, but failed to find the right time and it was never launched.

The shares, which accounted for close to 13% of the existing share capital, were offered at Rs269.50 apiece. The issue price was equal to the floor price, which meant that the 1.35% discount was as wide a concession the lender could make to attract investors to the deal. However, as Yes Bank's share price moved higher towards the end of the day on Wednesday, the deal did price at a 3.1% discount versus that day's volume-weighted average price.

The discount on Shriram's offering was somewhat wider at 2.9%, but the company was still not able to exercise the upsize option which could have increased the $125 million deal by as much as 72%. A source noted that the stock is quite illiquid with only about $3.5 million worth of shares changing hands every day and, with overseas markets falling as the deal was being offered, many investors weren't too eager to take on large blocks of shares in a thinly traded company.

However, the QIP will help improve the liquidity situation somewhat and the deal was sufficiently covered by 25 investors (not counting sub-accounts). About 85% was bought by long-only funds and the deal also saw a good balance between investors from Asia, Europe and the US. Indian QIPs are typically bought primarily by Asian investors. In this case, European investors contributed about 40% of the demand.

The company offered the shares at Rs500.8 each, which was rounded up from the floor price of Rs500.76, and compared with Wednesday's closing price of Rs515.50.

Shriram was brought to market by Bank of America Merrill Lynch, Citi and IDFC SSKI, while the Yes Bank transaction was arranged by CLSA, Goldman Sachs and Morgan Stanley.