The deal was completed just ahead of a ruling by IndiaÆs competition commission on Thursday, which determined that the countryÆs cement industry is involved in restrictive trade practices and ordered an end to price fixing. The inquiry into the issue began 17 years ago and involved 44 cement makers, including India Cements, according to local media reports. The firms have been given two months to comply with an order not to set prices in concert.
Given that IndiaÆs cement industry is highly fragmented, the ruling may result in downward pressure on cement prices. The companyÆs share price dropped 2.7% yesterday on the back of the news, but held well above the placement price at Rs299.15.
Like several other recent QIPs, existing shareholders played an important role in terms of building momentum in the book, but outside investors also showed their continued appetite for Indian equities û despite the heavy supply of late. The five most recent QIPs have raised a combined $2 billion.
According to one source, the offering was about 2.2 times subscribed, although two accounts alone ordered enough shares to cover 80% of the offering. One of those accounts was said to have represented an existing institutional shareholer. All in all, the book included 14 accounts.
The price was set at Rs285 per share, which was slightly above the floor of Rs280 that was given as guidance by the bookrunners at launch. Because of the recent volatility in the stock, they didnÆt provide a ceiling, but investors say it was widely assumed that the price would end up somewhere in the Rs280 to Rs290 range.
The final price represents a 2.6% discount to the closing price on Tuesday, which is the day when the deal was both launched and closed. However, the price has been whipped around a lot lately, making it somewhat difficult to compare this discount to other QIPs. The company had initially planned to sell the shares on Monday, but after the share price suddenly jumped 10.2% on Friday, joint bookrunners ABN AMRO Rothschild and Deutsche Bank understandably decided to hold off. In terms of getting enough demand for the deal, this proved to be the right strategy as the stock lost all of those gains on Monday when it fell 9.5%.
While it is possible that the company may have been able to achieve a slightly higher price had the sale come on the back of FridayÆs rally, it would likely also have been much tougher to find enough interested investors and the discount would no doubt have been greater than 2.6%.
The final price will result in India Cements issuing 20.8 million new shares, India Cements said in a statement. The new shares will account for about 7.4% of the companyÆs enlarged share capital.
India CementsÆ share price has risen more than 85% since early April as investors have been chasing companies that are benefiting from IndiaÆs rapid infrastructure expansion as well as the general construction boom. However, observers had no explanation either for the sharp spike in the share price on Friday or the similarly sharp correction on Monday.
India Cements, which has a history dating back almost 60 years, is the largest producer of cement in southern India and currently operates seven plants. Among its key strengths are its large reserves of limestone, which is used as a raw material, and its strong brand name. The companyÆs manufacturing plants are also strategically located close to key customers as well as to major ports, which helps to cut transportation costs both for its finished products and for its coal imports.
The companyÆs aim is to expand beyond southern India and become a leading pan-Indian player. To achieve this, it is planning to double its manufacturing capacity from 9.1 million tonnes today to 18 million tonnes per year by the end of 2010 through upgrades to existing plants and the construction of greenfield plants.
The two freight ships that it is in the process of buying will be used to import coal and are designed to reduce transportation costs.
On a separate note, this looks likely to be the final equity transaction arranged by ABN AMRO Rothschild as ABN AMRO and Rothschild announced last week that they will be discontinuing their decade-long equity capital markets joint venture from the beginning of next year. The breakup comes after ABN AMRO was acquired earlier this year by a Royal Bank of Scotland-led consortium that also includes Fortis and Banco Santander.
Starting from 2008, ABN AMRO will undertake all equity transactions under its own name, although this is likely to change again as RBS integrates the ABN AMRO business under its own brand.
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