India’s largest share sale, to mop up Rs 9,625 crore, for DLF Ltd, a real estate developer, was at least 3.47 times subscribed, according to the data available on the National Stock Exchange website as of 9pm on Thursday.
Of the 607 million bids the company got for the 175 million shares on offer, about 482 million appear to be at the higher end of the campany’s price band of Rs550 per share. The lower end of the price band was set at Rs500.
DLF, promoted by billionaire Kushal Pal Singh, 74, has been attempting to raise money for almost a year, with a series of disputes with minority shareholders delaying the share sale. With this offer, the company will become India’s largest listed real estate developer and Singh and his family could be worth nearly Rs82,000 crore, at the higher price of Rs550 a share.
Institutional investors such as banks, overseas buyers and mutual funds led the demand for the four-day offer, wanting to buy more than five times the shares that the company set aside for them, according to bankers involved in the transcation. DLF had earmarked the bulk of the offer, or about 104 million shares, for such investors. Retail investors, who typically wait until the last day to bid for shares, appeared to have offered to buy more or less all of the 52 million shares set aside for them.
Institutional investors “have a larger appetite for the real estate sector. There are signs that the government may want to curtail investments in this sector,” said Deven Choksey, managing director of KR Choksey Securities. “So foreign investors may have to go this route. So, I think we could see more offerings coming in this sector. Retail investors feel that valuations are high so there may not be listing gains. It is hard to say what the listing price will be at this point.”
DLF, which spent as much as Rs92 crore on everything from marketing to printing the forms for the offer, will soon dethrone rival Unitech Ltd as India’s top developer by market capitalization.
While institutions were clamouring for DLF shares, in Gujarat, one of the most active markets for share offerings as well as grey market trading, the response to the share sale was muted among investors
Nilesh Kotak, managing director of Ahmedabad brokerage firm Dhanvarsha Fincap Pvt. Ltd, said the DLF issue has not been greeted well by retail investors. Dhanvarsha’s clients made 1,000 retail applications for the Reliance Petroleum Ltd share offer, 650 for Power Finance Corp. IPO and 600 for the Idea Cellular Ltd offer. For DLF, the number of retail applications is hardly 300, Kotak said.
“The other trend I have seen is that my clients have scaled down the value of applications drastically. Those planning to invest Rs1 lakh have made an application of Rs50,000. Those planning an application of Rs50,000 have made application of anywhere between Rs10,000 and Rs25,000. The retail situation is really bad,” Kotak added.
Those playing koshtak, or the unrecognised grey market, made the most of the lukewarm response by retail investors. Many retail investors in the koshtak market who had earlier sold their applications for a fee on Thursday bought back their applications from brokers and made a neat profit without any investment.
“On 8 June, I was offered Rs3,500 each for making four applications on behalf of my family members. The money paid per application, however, came down to Rs1,600 due to lack of interest by retail investors. The broker simply paid me Rs1,600 and we did not have to put any application,” said an investor active in koshtak market for over a decade, but did not wish to be identified because it is an illegal market.
Several investors who apply for shares under the retail individual investor quota in their own name, using their own permanent account numbers (PAN), are a front for a broker who has agreed to pay them a predetermined flat fee, Rs3,500 in this case, to use the PAN card and the demat account for getting the shares. Both are mandatory for share purchases in India.
The agreed fee is paid paid out irrespective of how many shares are allotted or what happens to the price of the shares once they list.
In this case, the broker involved said he expects the share will not fetch a premium on its listing and hence he is cutting losses by buying back the applications.
The broker normally makes profits by acquiring a significantly larger number of shares through this route than he would get on his own. He would take a hit if, for some reason, the shares list at lower than the IPO price. For DLF’s issue, the broking community is concerned that the share may fall below its listing price and so it does not want to take chances.
Normally, retail applications do not get too many shares when an issue is subscribed many times over. This time, with a lukewarm response, all retail investors will be allotted the shares applied for.
The premium for the DLF share in the grey market, which was ruling at Rs35 per share about a fortnight back, too, was down to a band of Rs10-12 per share. In contrast, the premium for discount retailer Vishal Retail Ltd’s Rs230-270 share was ruling at around Rs350-360 per share.
(Shabana Hussain and John Samuel Raja D. contributed to this story.)