Jaiprakash Associates sell-down raises $250 million

The significantly upsized deal prices at the bottom. Meanwhile, Pipavav Shipyard prices its IPO just above the mid-point of the range.

Shareholders in Indian industrial conglomerate Jaiprakash Associates yesterday sold a combined stake in the company worth $250 million. Also in India, Pipavav Shipyard priced its IPO just above the mid-point.

The base deal size for Jaiprakash was initially $150 million with a price range of between Rs238 and Rs243, which corresponds to a discount range of between 2.7% and 4.7% to Tuesday's closing price of Rs250. In the end, the deal priced at the bottom, at Rs238, giving the maximum discount. At the close of trading yesterday, the shares were down 6.2% to Rs234.3.

High levels of demand allowed the company to upsize the deal to $250 million, which is equal to 50 million shares, the maximum that the shareholders had approval to sell.

The sellers are four trusts, under the control of Jaiprakash, which were created after a company restructuring this summer. So although the deal has the appearance of a sell-down, in some respects it is similar to a primary placement in the sense that the money raised will ultimately go to the company. 

The book was said to be covered by 30 accounts. Approximately three-quarters of the investors were long-only funds and nearly all of the demand originated from Asia. Even though Jaiprakash's shares are no longer cheap -- they have nearly quadrupled since the beginning of March -- investors saw the company as an infrastructure play with a bevy of worthwhile plans. Sources said that the cash will be useful in increasing the company's debt-to-equity ratio. In terms of building plans, one of its high-profile projects is building Delhi's first formula one track.

Looking ahead, some analysts say Jaiprakash has plenty of growth potential. A Citi report published earlier this month stated that, within 10 years, the company could be one of India's top three cement producers and one of the nation's largest real estate businesses. On top of that, it will have a sizeable power generation business as well as 1,200 kilometres of toll expressways.

"The success of [Jaiprakash's] asset heavy business is largely pinned on access to plenty of capital (debt and equity)," said the report. "As a consequence, the fundamentals of the company also tend to improve when debt is available more easily and the equity markets are conducive for fund raising." The demand for yesterday's placement therefore suggests that the short-term picture for Jaiprakash is just as healthy as the long-term.

The other equity news in India is the pricing of Pipavav Shipyard's IPO which came in at the mid-point of the indicative range. The company raised Rs4.95 billion ($103 million) ahead of its forthcoming listing by offering 84.45 million shares, equal to 12.8% of its enlarged share capital, at a price of between Rs55 and Rs60. The deal priced at Rs58.

The tranche for qualified institutional buyers was 10.6 times covered; the non-institutional tranche -- for corporates and high-net-worth individuals -- was 14.8 times covered and the retail tranche 2.9 times covered. Overall the offering was 8.25 times covered. This makes the deal much less popular than the other recent India IPOs: Adani Power, NHPC and Oil India, which were 21.6, 23.6 and 31 times covered respectively.

Pipavav is a company that is currently building what will be one of the largest shipyards in India. Located on the west coast, it will be a place where large bulk carriers can be built and repaired. The shipyard is expected to be operational in October, with the first completed ship scheduled for 2010.

Bank of America Merrill Lynch was the sole bookrunner on the Jaiprakash deal, while Citi, Enam Securities, JM Financial and SBI Capital Markets arranged the Pipavav IPO.

¬ Haymarket Media Limited. All rights reserved.
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