Investors have become increasingly bullish about the India growth story since Narendra Modi and his pro-business Bharatiya Janata Party came to power on May 16.
“It has all been very positive since the change in leadership because everyone is expecting a whole bunch of reforms that will kickstart the economy,” said one India based syndicate banker. “Infrastructure, or the lack of it, has always been a major sticking point in India, but the new government has said it will be fixing that, which is why investors are starting to put their money in construction and engineering firms.”
Both deals were launched on Wednesday. CLSA and Standard Chartered pitched the Jaiprakash trade at a price range of Rs70.72-Rs74.00, a 2%-6.3% discount to the stock’s reference price of Rs75.50.
Demand was strong, with bids from around 35 accounts totalling $400m. The orders were from a good mix of hedge funds, long-only accounts and domestic mutual funds, although allocations were skewed towards long-only investors, some of which were wall-crossed by the leads before the start of bookbuilding. The five biggest orders took 50% of the transaction.
Guidance for GMR Infrastructure was Rs31.50-Rs32.40, or a 4.0%-6.7% discount to its Rs33.75 reference price. The GMR trade was arranged by sole global co-ordinator Bank of America Merrill Lynch, which ran the book together with joint lead managers Axis Capital, Deutsche Bank, JP Morgan and ICICI Securities.
Some 48 long-only accounts and hedge funds bid for the shares and books were said to be so comfortably covered that the company was able to increase the deal size from $200m to $250m.
“I’m pretty sure that even if we had a few more deals happening in the same time demand would have been equally strong because a lot of fund managers have started relocating their money into India in recent months,” said a banker on the GMR trade.
So far this year Rs581.45bn of foreign institutional investor money has flowed into the country. That figure was only Rs622.88bn for the whole of 2013, according to the Securities and Exchange Board of India.
Similar outcome
But in spite of the strong orderbooks, final pricing for both trades came at the bottom of guidance. Jaiprakash’s deal priced at Rs70.72 for the full 6.3% discount, while GMR’s shares were sold at Rs31.50 for a 6.7% discount.
“The fact that we had two companies in the same industry tapping the market at the same time and for the same amount of money meant we had to be very cautious with pricing because if either one prices too tightly, investors would have flocked to the other deal immediately,” said a banker on Jaiprakash’s trade said.
Both companies’ shares were holding up well in the secondary market on July 4, with Jaiprakash up 1% and GMR 1.3% higher. That is despite the effect of dilutions for both companies, with the QIPs representing 8.5% and 12.2% of their respective enlarged share capital.
Proceeds raised will be used for deleveraging.