Mumbai: Indian state-run Power Finance Corporation Ltd (PFC) will launch its share sale on 10 May, four sources with direct knowledge of the matter said, marking a deal that could raise up to $1.2 billion in the largest Indian equity issue this year.
The Power Finance issue would be a key test for investor appetite amid a volatile market, slowing foreign fund flows, corruption scandals and rising interest rates in India, all of which have played a role in delaying planned issues.
The Mumbai market is down 5% this year, after having risen about 18% last year.
The Power Finance follow-on issue will close on 12 May for institutional investors and a day later for retail bidders, the sources said, declining to be named as the information was not public yet.
“There is high volatility in the markets and that has shaken the confidence of both institutional as well as retail investors for new paper,” said K.K. Mital, head of portfolio management at Globe Capital in New Delhi.
“This issue will be a litmus test and investor response will have a clear impact on the pipeline of government as well as private equity offerings,” he said. “I think the issue will have to be priced very attractively to lure buyers.”
The Power Finance issue is part of the government’s plan to raise $8.9 billion through share sales in public sector firms this fiscal year (April-March) to cut high fiscal deficit and garner funds to spend on schemes for the poor.
Energy explorer Oil and Natural Gas hopes to launch its share sale in June or July, its chairman A.K. Hazarika said last month. The issue, which could raise more than $2.5 billion, was earlier slated to be launched by 15 March.
Indian Oil’s more than $4 billion issue has been delayed from a January launch due to market conditions and a spike in global crude oil prices that is hurting earnings at the country’s biggest refiner and oil retailing firm.
Steel Authority of India is likely to file a draft prospectus for an up to $1.9 billion share sale in May, its chairman said last month. The public offer was earlier slated to be launched between January and March.
Many private equity deals, including an up to $436 million IPO by Hindustan Construction Co’s township developer Lavasa Corp and a $600 million issue by property firm Lodha Developers, have also been delayed due to an unfavourable market.
The overseas roadshows for the Power Finance issue will be launched later this week and the price band for the offering will be decided by a ministers’ panel a couple of days ahead of the 10 May launch, two of the sources said.
Goldman Sachs, Bank of America Merrill Lynch , JM Financial Services and ICICI Securities, a unit of India’s second-largest lender ICICI Bank, are the bookrunners for the Power Finance issue.
Power Finance executives were not immediately available for comment.
Shares in Power Finance, which the market values at nearly $6 billion, rose as much as 3.7% following the news. The stock rose to Rs231.70 in afternoon trade in the Mumbai market that was trading down more than 1%.
The issue will be the first major government paper to be launched after Coal India’s record $3.4 billion IPO and Power Grid’s $1.7 billion follow-on offering late last year.
Power Finance, a lender to power projects, plans to sell 15% in fresh equity shares while the government will divest 5% stake in the firm, the company has said in its prospectus filed with the regulators.
At current market prices, the share offering would be worth around $1.2 billion. The company will sell about 230 million shares through the offering, and plans to use the proceeds to boost its capital base.
Indian companies raised $24.9 billion from equity issues in 2010, posting a growth of 22% from the previous year and marking the market’s best annual performance since 2007, according to Thomson Reuters data.
In the first quarter this year, 22 firms have raised $2.3 billion in the Indian market, the data showed. Bankers have said the fundraising through share sales in 2011 will be lower than last year due to adverse market conditions.
Equity sales this year included steelmaker Tata Steel’s $770 million issue and state-run lender Canara Bank’s $443 million share sale.