The total deal size amounted to $1.6 billion after the issue price was fixed at a 3.2% discount to the market price, a gap which people involved in the offering said was reasonable given that the share price had risen 8.7% in the two weeks leading up to the pricing. The ADR premium over the locally-listed shares has also contracted significantly over the past 18 months as the supply of US-listed shares has increased. This latest sale will lift the ADR portion to 19% of total outstanding shares from 14%.
This is the third time in three years that Infosys has chosen to boost the liquidity of its US-listed shares through a sponsored secondary offering and each time the deal size has been getting larger. The latest deal marks the largest equity offering by an Indian issuer this year and the largest ever ADR from India.
Like the previous two times in May 2005 and October 2003, the sale was done by converting common shares into ADRs (on a one-to-one basis). The India-listed common shares were sold by domestic shareholders on a voluntary basis, allowing them to cash in at a premium. Consequently, the company received no proceeds from the sale.
When the offer to domestic shareholders ended last Friday, the company had received 3,477 valid offers to sell 84.03 million common shares, but given that Infosys had only filed to sell 30 million ADRs, the deal couldnÆt be increased beyond that. The unsold shares will be returned to the shareholders who tendered them by December 4.
On the other side of the transaction, the demand wasnÆt quite as strong, which wasnÆt entirely surprising given the size of the transaction. The deal was more than 50% larger than InfosysÆ previous sponsored ADR sale in May 2005, which totaled $1.07 billion, and six times the $265 million sold in October 2003.
One source notes that funds tend to be ôheavily overweightö Infosys, which would have limited their buying potential. Infosys was the first Indian company to list in the US in 1999 and has delivered a stellar performance every year since then.
According to sources, the final order book was about 1.5 times covered with around 130 investors submitting orders. A couple of long-only funds bought sizeable stakes and the demand from Japanese retail investors was also very strong, which helped build momentum in the book.
The demand from Japanese investors wasnÆt included in the 1.5 times subscription ratio as they were participating in the deal through a Public Offering Without Listing (POWL). No specific size had been set aside for the POWL beforehand, but the company ended up selling 5 million shares, or close to 17% of the total deal, this way.
According to one observer, some hedge funds were also quite keen to switch from the local shares to the ADRs as the liquidity improved. ôMany hedge funds prefer to hold shares listed in the US, especially if they can pick them up at such a low premium,ö he says.
About 75% of the deal was allocated to US-based accounts, while 15% went to Europe and 10% to Asia, sources say.
By the time the offer closed at the end of New York trading Monday, the premium over the locally-listed shares had narrowed to about 10% versus the Rs2,253.10 close of the underlying Mumbai-listed stock on Monday. The premium touched 15% during the six-day roadshow and had come down from 34% at the time of last yearÆs ADR transaction. In February last year, the premium was an even greater 54%.
This latest deal was priced at $53.50 per unit, which compared with MondayÆs close of $55.27. The stock has risen 12% since the company first proposed the issue in mid-October and is up about 35% from a low of $40.74 following the global equity market correction in May.
The Mumbai-listed stock dropped a marginal 0.05% to Rs2,252 in the wake of the transaction yesterday.
During the roadshow the Infosys management noted that a key reason for wanting to increase the liquidity and free-float in the US-listed shares is that the company wants to meet the criteria for being included into the Nasdaq-100 index.
ôInfosys is definitely looking to be an international stock rather than an Indian stock and if it was to join the index it would add a whole new investor base,ö says one source. ôFollowing this issue I think it will be very close to achieving that goal.ö
ABN AMRO Rothschild, Banc of America Securities, Deutsche Bank, Goldman Sachs, JPMorgan, Nomura Singapore and UBS were joint lead managers for the offering, while Nomura Securities acted as the sole bookrunner for the POWL.
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