Jaiprakash Power Ventures, an Indian power producer, has raised Rs9.5 billion ($175 million) from a qualified institutional placement (QIP), after pricing the deal at a 5% discount to the floor price. The discount to the latest close was as wide as 8%.
The deal, which was launched on Tuesday evening and completed before the opening of Indian trading yesterday, attracted strong demand from regional and international long-only investors, as well as domestic mutual funds, a source said yesterday. This allowed the issuer to exercise the $50 million upsize option in full, increasing the deal size from the original $125 million.
Notably, the company, which owns and operates three hydroelectric power plants, flagged in an announcement of the QIP on Tuesday that it “may offer a discount of not more than 5% on the floor price”.
It became possible to do that after the Securities and Exchange Board of India (Sebi) amended the existing regulations in October last year to make it easier for companies to access the equity capital markets. However, companies that wish to make use of the new possibility to offer a discount of up to 5% to the floor price have to also seek approval from their existing shareholders.
The deal launched without the price range, but the bookrunner told investors that the floor price was Rs31.93 and said the price may come at a 5% discount to that. Not surprisingly, it ended up pricing at the maximum discount for a final price of Rs30.33, which was around where the majority of the orders came, the source said. The stock closed at Rs32.95 on the National Stock Exchange of India on Tuesday.
About 25 investors participated in the transaction, but the top five names accounted for about 75% of the allocations, the source said. About 70% went to international investors.
Jaiprakash Power sold 313.2 million shares, which was equal to about 12% of the company.
After the transaction, the share price fell 6.7% yesterday to Rs30.75, remaining above the offer price. It has fallen 18% since the start of the year after jumping more than 82% between August and early December last year. It was up about 7% in 2012 as a whole.
The National Stock Exchange CNX Nifty Index, which was almost unchanged yesterday, is up 0.6% so far this year, building on a 28% gain last year.
Jaiprakash Associates, which owned 67.9% of Jaiprakash Power prior to the deal, is the promoter of the company. It is an Indian industrial conglomerate and the flagship company of the Jaypee Group.
Credit Suisse was the sole bookrunner for the deal.
India’s floor price mechanism dictates that the issue price cannot be below the average of the weekly closing high and low in the two weeks prior to the deal. As the floor price tends to be very close to the latest market price (in a falling market it is often above it), it makes it difficult for issuers to offer investors a decent discount.
The floor price mechanism is very restrictive and that has stopped many deals, a source away from the deal said yesterday, adding that time will tell whether this new rule will be useful for future deals.
Jaiprakash Power plans to use the proceeds to fund power projects, to invest in subsidiaries, to repay outstanding debt and for general corporate purposes, according to the filing.
The company says it is at various stages of implementing three thermal power projects, including the remaining phases of its operating thermal power plant. It is also in the preliminary stages of developing four hydroelectric power projects, in addition to the three that are already operational.
For the six months to September 30, 2012, the company booked Rs15.7 billion in revenue and Rs5.7 billion in net profit, according to the filing. For the fiscal year to March 2012, its revenue stood at Rs16.9 billion and its net profit reached Rs4 billion.
Elsewhere in India, Axis Bank raised $877 million in January from a QIP that was significantly oversubscribed and sent investors scrambling for the stock in the secondary market. That deal was priced at a 1.8% discount to the latest close. In connection with the placement, Axis Bank also sold an additional $152 million worth of shares to state-owned Life Insurance Corp of India (LIC). Axis Capital, Citi and J.P. Morgan were joint bookrunners for the transaction.
In August last year, Jaiprakash Associates raised $150 million from a five-year convertible bond that it said it would use towards the redemption of a larger outstanding CB that matured the following month. Jaiprakash’s businesses include engineering and construction, cement, power, hospitality, real estate and expressways.