India's IDFC raises $575 million from QIP

The infrastructure-focused finance company draws strong interest despite a tight 1.17% discount, allowing the deal to be upsized from $500 million.

Infrastructure Development Finance Company (IDFC), an Indian institution that provides finance for various infrastructure projects, has raised Rs26.5 billion ($575 million) from an upsized qualified institutional placement (QIP) to improve its tier-1 capital and to increase its lending capacity.

The government has estimated that $449 billion needs to be invested in Indian infrastructure, including power generation, roads, railways and irrigation projects, between 2008 and 2012 and, in a presentation earlier this month, IDFC projected about $1.1 trillion of infrastructure spending between 2011 and 2017. As a public-private partnership (the government owns just over 20%), IDFC can be expected to play a large role in the financing of these projects.  

At the final size, the deal marks the largest follow-on by an Indian financial services company this year and the largest QIP since aluminium producer Hindalco raised $600 million in November last year. And the company may have grabbed just the right window to push it out as concern about economic growth saw Asian markets turn weaker yesterday and then prompted a significant sell-off in the US overnight with the Dow Jones index tumbling 2.9% and returning below 10,000 points.

The deal was launched after the Indian market closed on Monday and completed before the start of trading yesterday.

Sources said IDFC and its four bookrunners had become confident about launching the deal after the company received a good response from large long-only investors during a recent non-deal roadshow. So, while there were no formal anchor investors supporting the deal, there was certainly firm indication of buying interest.

Still, perhaps to test the waters, the deal was initially launched at a size of $500 million with an upsize option of $75 million. And, after ending about two times covered, the offering was upsized in full, allowing the company to sell approximately 157.5 million new shares. According to a source, the demand was skewed towards long-only funds and there was good interest from outside Asia, particularly the US. Some existing shareholders submitted orders, but the focus was on getting new names into the stock.

Supposedly because IDFC is a public sector financial institution, the company was exempted from the usual QIP limit of a maximum 49 buyers, and the source said more than 60 investors participated in the transaction.

The deal was launched at a fixed price of Rs168.25, which represented a modest discount of 1.17% versus the closing price on Monday. However, the offer price was virtually equal to the floor price of Rs168.21, meaning the company had to offer at a tight discount, or not at all.

That said, even after a 25% gain in the past year, observers said the stock was trading at a level where investors were comfortable to own it, or even own more of it. The discount also mattered relatively less as the QIP was viewed as a liquidity event and an opportunity to get into the stock in size. The final deal size accounted for about 30 trading days and 12.1% of the existing share capital.

The fact that the company raised such a large amount straight away may also have helped attract interest since it could suggest that it won't have to return to the market any time soon. The company had approval to raise up to $750 million through new equities or equity-linked instruments, but one source said if it decides to sell more shares to raise the rest it will most likely be to a small group of investors through a private placement. The company has also supposedly indicated that the price in such a placement will not be below yesterday's QIP price.

And investors didn't seem too concerned about that deeming from the strong share price performance after the deal. Having dipped to hit the placement price immediately at opening, the stock quickly recovered and traded mostly above the pre-deal closing price for the rest of the day. A strong finish saw it close 1.2% higher on the day at Rs172.35, while the benchmark Bombay Sensex index fell 1.4%.

CLSA, Credit Suisse, IDFC Capital and Morgan Stanley acted as joint global coordinators and joint bookrunners for the issue. 

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