Indian outsourcing firm prices US IPO at top end

The size of the WNS offering increased to $224 million as heavy oversubscription allowed British Airways to sell all its shares.
The strong interest in the roadshow for IndiaÆs first business process outsourcing (BPO) firm to seek a public listing did convert into actual orders at a rate which allow the company both to increase the size of the deal and to price it at the top of the range.

WNS (Holdings) raised $224 million after fixing the price at $20 per unit, although only 40% of that will go to the company as the rest of the offering consisted of secondary shares that were sold by existing shareholders.

The final price values the company at 35.7 times its fiscal 2006 earnings, which totaled $18.3 million or $0.56 per share. The company turned profitable in fiscal 2006 after two yearsÆ of losses as it built up the business towards third parties.

The American Depositary Shares, which were offered to investors in a price range of $18 to $20 per unit, were due to start trading on the New York Stock Exchange last night (July 26).

Morgan Stanley, Deutsche Bank and Merrill Lynch were joint bookrunners for the offering, while Citigroup and UBS also had roles on the underwriting syndicate.

The initial deal size of 10.4 million American Depositary Shares (each accounting for one common share) was increased to 11.2 million, or 28.1% of the company post-issue, after the book was said to have been more than 10 times covered with no price sensitivity. The additional shares came from British Airways, which took the opportunity to sell its entire 14.6% stake in the company in one go.

According to sources, BA had wanted to do this all along, but the bookrunners were wary about approaching the volatile market with too big an offering and suggested the airline operator keep a modest 1.9% holding in the company.

The 4.5 million new shares offered by WNS and the number of secondary shares sold by other existing shareholders, including Warburg Pincus, werenÆt affected by the increased deal size.

WNS was originally set up as an in-house unit of British Airways in 1996 and the airline is expected to continue to use the companyÆs services even after divesting its shareholding interest.

The company started to provide outsourcing services to third parties in fiscal 2003 after Warburg Pincus bought a controlling stake in the company in May 2002 and currently has more than 125 significant clients. With a focus on the travel industry, banking and financial services, as well as a wide range of other industries such as manufacturing, retail, logistics, utilities and professional services, the company ranks as one of the top two Indian offshore BPOs in terms of revenue, according to the National Association of Software and Service Companies (NASSCOM).

Warburg Pincus will see its share in the company reduced from 64.7% to 57.4%, or to 53.6% if the 15% greenshoe of mainly secondary shares is exercised in full.

Aside from projections of strong growth for the BPO industry over the next few years, investors were said to have liked the companyÆs diversified business model. About 70% of its business consists of managing transactions for various companies including airlines like BA, Air Canada and Virgin Atlantic.

The interest in the companyÆs roadshow was particularly strong in Asia and the US, but the actual orders were said to have been split roughly even between Asia, Europe and the US. About 200 investors bought into the IPO.

ôContrary to recent deals where many investors got cold feet when it came to submitting the orders, the conversion ratio from the roadshow was pretty high,ö one observer notes.

However, the demand was seen to have been entirely company specific, with a continuing improvement in margins and increasing top-line growth being key incentives, and bankers said it wasnÆt possible to draw any conclusions about other Indian shares offerings or IPOs on the back of this deal.

That said, the fact that this was the first opportunity for investors to invest directly into IndiaÆs expanding BPO industry likely helped boost interest.

Earlier this week, Tech Mahindra, which provides IT services exclusively to the telecommunications industry, started the bookbuilding for a domestic IPO of up to $100 million. GMR Infrastructure is also on the road in Europe and the US to drum up interest for an IPO that is aiming to raise between $171 million and $204 million with bookbuilding due to start next week (July 31).

ABN AMRO and Kotak Mahindra are joint bookrunners for the Tech Mahindra offering, while DSP Merrill Lynch, Enam Financial Consultants, JM Morgan Stanley and SSKI are leading the GMR transaction.

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