Indian stock wind energy company, Inox Wind, priced its initial public offering at the very top of its indicative range on Wednesday, raising Rs10.2 billion ($163 million), becoming the latest company in India to tap equity capital markets.
The combination of a favoured government sector and the recent outperformance of India's stock markets enabled the company to attract strong demand particularly from international investors.
The company sold 22 million primary shares and 10 million secondary shares at Rs325 per share, the very top of its Rs315 to Rs325 indicative range. Retail investors and eligible employees received a discount of Rs15 per share.
Allocations were still being finalised on Thursday, but a source close to the deal told FinanceAsia the final order book had a split of 65% international investors and 45% domestic investors. Asia accounted for roughly 75% of the international tranche, with the balance from the US and Europe. It closed 19 times oversubscribed.
The source added that the deal had a slight bias towards long-only institutional investors, which accounted for 60% of the final book, with hedge funds making up the balance.
The company's parent, Gujarat Fluorochemicals, netted Rs3.25 billion ($51.8 million) from the flotation after offloading 10 million shares. In total, the deal accounts for 14.35% of the company's enlarged share capital.
Listing is now scheduled for April 6. Bank of America Merrill Lynch, Axis Capital and Edelweiss were joint global coordinators and bookrunners. Yes Bank acted as a lead manager.
The IPO comes nearly one year after the Indian government restored key tax initiatives for wind farms in an effort to reduce the country’s dependence on imported fuels. Proceeds will help Inox Wind double its turbine blade-making capacity to 1,200 megawatts, with the firm striving to become one of the top three suppliers of turbines in India by year-end.
According to local brokerage house KRChoksey, the deal has been priced on an EV/Ebitda multiple of 17 times, above Indian wind turbine maker Suzlon Energy, which is trading around 10.3 times. Inox Wind has also been priced above the BSE Sensex Index average of 10.8 times EV/Ebitda calculated by Kotak Institutional Equities.
The Sensex has risen 24.2% on a one-year basis and is pretty much flat year-to-date. However, since the first few days of March it has dropped 7.2% and Kotak cautions investors about further slippage.
"Market participants are perhaps caught in a self-perpetuating cycle of growth expectations and rising stock prices, with rich valuations being glossed over," Kotak wrote in a research note.
ECM bright spot
India has been the region’s bright spot in equity capital markets so far this year, with three of the largest deals in the first quarter of 2015 coming out of the country according to Dealogic data. (This excludes A-share listings).
The Indian government raised $3.6 billion after selling a 10% stake in state-run Coal India during February, giving the government’s divestment drive a boost. HDFC Bank, meanwhile, secured $1.6 billion from a dual-share sale in the US and India just a few days later.
In total, some $6.5 billion has been raised via 24 Indian ECM deals in the year to March 24, compared with $2.6 billion over the same prior year period, Dealogic data shows.
Bankers expect the momentum generated by this string of deals, combined with the stock market's outperformance, to spur other equity issuance. For example, Tata Motors has announced a Rs75 billion rights offering and the State Bank of India aims to raise Rs150 billion in the next couple of months.
Indian has benefited from expectations about prime minister Narendra Modi's reform initiatives and a halving of global oil prices since the middle of 2014. Brent Crude is now trading around $55 per barrel, down from over $100 a barrel in July last year.
This has allowed the government to raise diesel and petrol fuel taxes while cutting diesel prices by as much as 30%, pocketing nearly $3.5 billion from repeated tax hikes on fuel taxes, according to media reports. And the money saved at gas pumps will go straight into consumers’ pockets, which should in theory boost GDP.
The wind energy sector in particular is expected to benefit from Modi’s initiatives. “The prime minister has come out and said [renewable energy and wind energy] will be a main focus,” one source told FinanceAsia.
Greater China's comeback
Indeed, Dealogic data shows that Indian equity issuance accounted for 21% of Asia's total issuance in the first quarter this year, compared with 19% from China. One banker told FinanceAsia this is one of the first times in recent history that India has surpassed China.
However, China and Hong Kong are likely to re-gain the lead later this year given the long pipeline of financial services companies looking to access the market. These include Bank of Beijing, Postal Savings Bank of China, Huarong Asset Management, Huatai Securities, Bank of Shanghai and CICC.
Most recently, GF Securities, China’s fourth largest broker by assets, has kicked off roadshows for its Hong Kong IPO of up to $4.13 billion including the greenshoe. The offering is being marketed at a big discount to the company's A shares and has, unsurprisingly, generated strong investor interest.
The deal has secured $1.87 billion in orders from 18 cornerstone investors, accounting for half of the total deal size. Retail investors, meanwhile, applied for 45 times the shares available during the first day of the local public offer on March 25.
