It took just a minute for hungry investors to fully subscribe to India’s biggest ever USD 3 bn IPO. Anil Ambani group`s Reliance Power IPO on Tuesday generated a demand of close to Rs 1 lakh crore (Rs 1 trillion) within four hours of start of the book building process, with the issue getting oversubscribed 10 times.

The issue was covered 10.5 times at the end of the first day of the issue, which closes on Friday, National Stock Exchange data showed, and the strong demand means the 10.1 percent stake in Reliance Power should be sold at 450 rupees (USD 11.5) per share, the top end of the IPO`s price band.

The founders have bought 32 million shares at 450 rupees, while 228 million shares have been offered to the public, with a stock market debut pencilled in for early February.

The issue, which began this morning and would continue till January 18, has already generated demand for shares worth Rs 99,373 crore (Rs 993.73 billion). “It is a reflection of world community in the future of India… Investors seem to be confident in the future of Indian economy,” Finance Minister P Chidambaram told agencies on the IPO.

Most of the bids came at Rs 450, the upper end of the price band making it the country`s largest-ever IPO with an estimated proceeds of Rs 11,700 crore (Rs 117 billion), bankers close to the IPO said.

“It has created an unprecedented euphoria in the market, The issue would be a good option for retail investors who are looking for short term gains,” domestic brokerage firm SMC Global`s vice president Rajesh Jain said.

The company is offering the equity shares at a price band of Rs 405-450 per share. The total size of the IPO is of 26 crore (260 million) equity shares, including the promoters contribution of 3.2 crore (32 million) shares. The net issue to the public constitutes 22.8 crore shares.

Analysts believe that Reliance IPO will kick off a busy period of capital raising. Moreover, the type of frenzy that has gripped the investors is something seldom seen before.

Market sentiments are such that not many are keen on looking at the fundamentals or finer details of the issue. For them the Reliance brand is more than enough to trust their money with.

The grey market premium for the IPO is at around Rs 450-500 but if you believe the brokers then the listing price would be nothing short of Rs 950-1,000.

Interestingly, experts say the issue is overpriced, as Reliance Power will start earning latest from December 2009 when its first generation unit — phase I of 600 MW Rosa Power project in Uttar Pradesh — goes on stream.

That effectively means the stock until then will trade at zero earnings no matter at what price it will have an effective price-to-earnings multiple (P/E) of infinity.

For retail investors

Reliance has set aside 30 % of the total shares exclusively for sale to retail investors. Moreover, retail investors have been offered a discount of Rs 20 per share. Implying that for them net cost of subscription will be Rs 430 per share, if they choose to bid at the high end value of Rs 450 per share.

Retail investors can pay 25 per cent of the issue price for 225 shares as part payment under the scheme exclusively meant for the retail customer. It works out to around Rs 25,000.

“It has created an unprecedented euphoria in the market, the issue would be good option for retail investors who are looking for short term gain,” domestic brokerage firm SMC Global`s vice president Rajesh Jain said.

Indian IPO volumes soared to a record in 2007 when new listings raised USD 8.3 billion from 91 issues, including real estate firm DLF`s USD 2.3 billion issue, which is so far India`s biggest IPO, according to data from Thomson Financial.

“The IPO is going to be very well received in the market, looking at the group`s aspirations and because investors have faith in their execution capabilities,” said Nikunj Doshi, Investment Manager at Envision Capital.

Indian companies are expected to raise USD 15.8 billion from 35 IPOs issues this year, almost twice as much as the record in 2007, according to Thomson Financial data.

Reacting to the huge response, Finance Minister P Chidambaram said it seems to reflect the confidence of global investors` in the future of Indian economy. “It is a reflection of world community in the future of India… Investors seem to be confident in the future of Indian economy,” Chidambaram said.

Source : Zee News

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