REC shows investors haven't abandoned Indian IPOs

The power project financing company raises $410 million amid strong demand two weeks after waning interest forced other listing candidates to withdraw.
Rural Electrification Corporation (REC) has priced its initial public offering at the top end of the range for a total deal size of Rs16.4 billion ($410 million), offering clear evidence that investors havenÆt given up on Indian IPOs that are perceived to have good growth prospects.

A provider of financing for projects within the power sector, including generation, transmission and distribution, the company attracted orders for 27.9 times the amount of share on offer. The 30% set aside for qualified institutional buyers was more than 39 times covered. The response was in stark contrast to the muted reception for the IPOs of Wockhardt Hospitals and property developer Emaar MGF Land two weeks ago, both of which were withdrawn due to a lack of demand. Wockhardt had sought to raise $143 million while Emaar MGF was targeting at least $1.37 billion.

The benchmark Sensex index has edged up 1% since these deals were cancelled but is still down 18.2% from its all-time closing high of 20,873 points from January 8.

The size of REC may have proved to be more appropriate for the current volatile market environment in the sense that it was large enough to provide sufficient liquidity for a quick exit should the share price take a tumble, but at the same time, small enough to be digested by the market without too much trouble.

However, it was likely that the companyÆs involvement in the power sector was the main attraction.

ôThe power sector is very hot in India and it needs to develop. So anything to do with power will do very well. If India grows the power sector has to grow and financiers of power will benefit from that,ö one source says. REC is also in a good position because it has a very low cost of funding and very high net interest margins, he adds.

REC offered 156.12 million shares, or 18.2% of its share capital, at a price between Rs90 and Rs105. The top end pricing was equal to about 1.6 times its book value. IL&FS Investsmart, ICICI Securities and SBI Capital were the joint arrangers.

The final price was determined yesterday, on the same day when Reliance Power closed above its IPO price for the first times since its listing two weeks earlier. The greenfield power producer, which raised $3 billion in mid-January just as the secondary market took a turn for the worst, gained 8% on the day to finish at Rs450.40 û or marginally above its IPO price of Rs450. IRB Infrastructure, which debuted yesterday after raising $240 million from an IPO in the same week that Wockhardt and Emaar MGF were called off, gained 2.2% to Rs189.05.

REC is the second Indian power financing company to go public following the part-privatisation of state-owned Power Finance Corporation in February last year. PFC raised $225 million from the listing and has seen its share price more than double from the IPO price of Rs85 to yesterdayÆs close of Rs185.05.
¬ Haymarket Media Limited. All rights reserved.
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