India's Idea Cellular prices IPO at the top

The mobile operator draws record demand from institutional investors, providing a positive backdrop for numerous Indian IPOs in the pipeline.
Idea Cellular has become the latest Indian company to price its initial public offering at the top end of the indicated price range after receiving very strong demand, particularly from institutional investors.

At a final deal size of Rs24.5 billion ($555 million) this is the largest IPO by an Indian company this year, but the level of demand shows the market had no problem absorbing it. As a matter of fact, the total interest of $24.5 billion for this company alone suggests that the 2007 IPO pipeline, which bankers estimate includes at least $10 billion worth for deals, wonÆt be much of a challenge û as long as the underlying market holds up.

Qualified institutional buyers alone ordered just over $15 billion worth of stock, or 78.7 times the number of shares available to them (58.6% portion of the total deal), which made this the largest ever institutional subscription for an Indian IPO in dollar terms. The total deal size was 49.5 times covered.

ôBecause of the pro-rata allocations, institutional investors will receive less than 0.1% of what they asked for so the appetite was definitely not met and there will be a lot of pent up demand when the stock starts trading,ö says one banker not involved in the deal.

Most observers expect the stock will open above Rs100, compared with the final IPO price of Rs75.

True, Idea Cellular may have been particularly easy to sell given the dearth of new listings within the telecom operator space since 2003, both in India and globally. And with foreign ownership having reached the limit in many of IndiaÆs listed telecom companies, this presented a rare opportunity to buy into the sector.

Mobile phones are a high-growth business in India, which the recent battle for a majority stake in Hutchison Essar clearly demonstrated. The announcement that Vodafone was the winning bidder came during Idea CellularÆs bookbuilding period and helped draw attention to the sector.

Idea Cellular has about 12.4 million subscribers and had a 16.7% market share of net subscriber adds between April and December last year, making it one of he fastest growing mobile operators in the country. It currently operates in 11 areas, or so called circles, and also holds a license for the Metropolitan Circle of Mumbai.

The parent company, Aditya Birla Group, is also well-regarded. Aside from mobile telecom services, the groupÆs operations range from mining, cement and aluminium production to textile and garment manufacturing, insurance and financing.

Idea Cellular offered about 326.9 million shares in a range between Rs65 and Rs75 apiece. DSP Merrill Lynch and JM Morgan Stanley was joint bookrunners for the offering with Citigroup and UBS acting as senior co-bookrunners.

At launch, the top of the range valued the company at a 10% discount to its larger rival Bharti Airtel, but the latterÆs share price has gained strongly in recent weeks which has seen the discount widen to more than 20% - further increasing the attractiveness of the newcomer.

The Indian stock market as a whole has also remained well supported at high levels despite repeated calls from analysts saying it is overvalued. As of the close of trading yesterday (February 21) MumbaiÆs Sensex index was up 2.9% this year at 14,188 points. This is only 3.1% below its all-time closing high of 14,652 points, which it reached on February 8.

Other Indian IPOs priced at the top of the price range in recent weeks following strong demand include government-controlled Power Finance Corp, which raised $225 million, FirstSource, a business process outsourcing company which raised $100 million, and Indian Bank, which pocketed about $177 million from its offering.

Among the IPOs waiting in the wings, property developer DLF UniversalÆs mega-sized deal that could check in at more than $2 billion continues to command most of the attention and is expected sometime in the next two months. Other companies lining up include property developer Omaxe, Power Grid, National Hydroelectric Power, IT solutions provider Genpact and a joint venture between DubaiÆs Emaar Properties and IndiaÆs MGF Developments.
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