After years of only having Indian IPOs of less than $100m to play with, investors were keen to lap up Coffee Day’s offering this month. Part of conglomerate Amalgamated Bean Coffee Trading Co, Coffee Day opened books on October 14 with some 35.06m-36.39m shares up for grabs at a price range of Rp316-Rp328 a share.
Initial momentum was strong, thanks to a chunk of stock put in the hands of anchor investors before bookbuilding kicked off. And while books built slowly, the end result was nothing short of successful, with the issuer pricing its IPO at the top of the range and taking the gong as the largest listing since 2011.
It will not however hold that title for very long as InterGlobe Aviation, which runs budget carrier IndiGo, wants to raise as much as Rp32.5bn from an IPO next week. And Coffee Day’s success has set the stage for future success.
“Coffee Day’s IPO is not as big as [InterGlobe] but everyone needed it to do well,” said a Hong Kong-based ECM syndicate banker on the transaction. “It’s a well-known brand in India and many were watching it as a benchmark for sentiment for their own deals.”
Also helping drive momentum is the fact that India’s National Stock Exchange CNX Nifty Index and S&P BSE Sensex have been climbing steadily for the past few weeks. This was following a fair bit of volatility during the summer, with the recent calmness offering some relief for investors.
“The sudden explosion in IPO activity out of India comes as markets are up over the past one and a half months, and issuers approved by the regulator have been waiting for the right window,” said a Mumbai-based ECM banker.
Explosive activity
The time is now, with bankers saying their primary pipeline is looking pretty full in the run up to the end of the year. In addition to InterGlobe, which firmed up a group of anchor commitments on October 22, other companies too are expected to hit investors’ radars soon.
Fragrance and flavour company, SH Kelkar, plans to open bookbuilding for its listing of around Rp5.1bn at the end of October. It is expected to be followed by names including Dr Lal PathLabs, which is gunning for at least $100m, and Larsen & Toubro Infotech, which is slated to raise $300m from its IPO before March 2016.
Deals for Quick Heal Technologies and Parag Milk Foods are also expected as soon as they receive the nod from the Securities and Exchange Board of India (Sebi), said bankers.
“Sentiment for stocks is picking up for sure,” said the Hong Kong-based ECM syndicate banker. “And when you have a couple of good names doing good deals, people will see it as a sign to rush out with their own deals too, which is what I am seeing now. The extent of our conversations with companies that have already filed for IPOs has picked up in the past two weeks or so as the mood of the market improves.”
Also helping matters is the Reserve Bank of India starting to grant provisional licenses to microfinance lenders to convert into small finance banks. One of the conditions for the transition is for firms to reduce their foreign ownership to 49% — which is also expected to fuel a spate of IPOs.
For instance, Ujjivan Financial Services is one of around 10 companies to get the RBI go ahead to become a finance bank, but foreign investors hold more than 85% at the moment. This means the company is eyeing an IPO worth around $200m in a bid to dilute foreign ownership, say sources close to the situation.
It’s the same case for Equitas Holdings, which has filed for a Rp12bn listing after getting approval from the RBI to become a small finance bank.
“Small finance bank IPOs will be an important sector going forward because they need to list for regulatory reasons,” reckoned the Mumbai-based banker. “And banks are competing aggressively for these mandates.”
Institutional support
The extent of institutional interest for Indian stocks was reflected in Coffee Day's final outcome. The portion reserved for qualified institution buyers, including foreign and domestic investors, was roughly 4.5x covered, while the tranche for high net worth accounts was 0.5x covered, and the retail portion 0.9x. The total book was 1.82x covered.
The lower level of interest from retail accounts was down to the structure of the IPO. The entity being listed is Coffee Day Enterprises, a holding company with interests not just in the coffee business, but also in technology parks, logistics, financial services and hospitality.
“If [Café Coffee Day] was the entity being listed, the response would be different,” said the banker. “But because Coffee Day has interests in lots of sectors, it dilutes the whole consumer story a bit. So the people taking a position in the stock are those that want exposure to the whole business and understand the firm better.”
Joint global co-ordinators and bookrunning lead managers Citi, Kotak Mahindra and Morgan Stanley were undeterred from pricing the stock at the top of the range. This was despite the fact that anchor orders had put in their commitments only at the middle of the range, meaning they’ll now have to pay the additional amount.
InterGlobe meanwhile wrapped up a preliminary anchor process on October 22, say sources close to the IPO, with robust demand already forcing a scale back at the anchor level. Anchor books will officially open and close on October 26 “as a formality”. Bookbuilding will kick off on October 27-29, with the price range set at Rp700-Rp765 a share.
Some 16.63m-18.17m primary shares will be offered, with the secondary portion slimmed down slightly to 22.8m shares from the original 26.11m. This was after one of the selling shareholders decided to offload a smaller part of his holding, but the move has dented sentiment very little.
“If it was InterGlobe reducing the primary portion, it’s worrying,” said a syndicate banker close to this IPO. “But secondary portion reduction doesn’t affect sentiment much because the company fundamentals remain the same.”
Global co-ordinators and bookrunning lead managers for InterGlobe are Citi, JP Morgan and Morgan Stanley.