New Delhi: Developer Emaar MGF Land Ltd called off what would have been India’s third largest share offer as its attempts to coax reluctant investors with two rounds of price cuts and a deadline extension for its initial public offering (IPO) of stock simply failed to woo institutional and retail buyers rattled by a falling stock market.
Emaar’s surprise decision to yank its Rs6,400 crore offer came just a day after Wockhardt Hospitals Ltd had bailed on its IPO and will deepen the negative sentiment in Indian stock markets, where the benchmark Sensex index is now down 18% in 2008.
Despite global worries—21 IPOs worth a combined $6.3 billion were pulled globally in January alone—Indian companies had bullish expectations from the market stemming from the January sell-out of India’s largest IPO.
India’s biggest share offer by Reliance Power Ltd sold out in a minute of being available and sucked out more than Rs10,000 crore in funds. It is set to open for a highly anticipated trading debut on Monday.
Since then, however, the market has been wobbly with concerns that the world’s largest economy, the US, is poised for a sharp slowdown and that would have a knock-on effect on other economies in the world.
Realty bites: Shravan Gupta, managing director, Emaar MGF. (Ramesh Pathania / Mint)
Emaar MGF’s share offer was 85% subscribed on Thursday, suggesting it might yet squeak through.
But, according to Friday evening data available on the National Stock Exchange’s website, only 39% of the shares on offer were subscribed, suggesting significant rethinking on part of those who had signed up until now. Institutional investors offered to buy 29% of the 61.54 million shares reserved for them, while retail investors sought to buy 46% of the 30.77 million reserved for them.
According to Emaar’s spokesperson, 42% of the qualified institutional buyers (QIBs) who subscribed to the IPO withdrew applications after the announcement was made about the company withdrawing its IPO. According to a banker involved in the issue, who did not wish to be quoted because of the sensitivity of the matter, the decision to withdraw the IPO was taken much before the QIBs pulled out of the IPO. “Given the market conditions, we believe post-issue we would not have been able to give investors adequate returns,” he said.
Emaar claimed it received applications worth Rs5,779.36 crore and the retail portion had at least 225,000 applicants.
In a statement, Emaar MGF said: “The company decided to take this step as a result of the prevailing adverse market sentiments fuelled by renewed indications of a US recession and global melt-down. Given the prevailing sentiments in the capital markets, it was unclear how well the stock would trade post-listing. It has been considered wiser to revisit the market only when the demand and sentiment are stable and better, providing greater value to investors.”
Still, many market watchers had expected Emaar MGF to pull support from Emaar Properties PJSC, the biggest developer in West Asia and the second largest stakeholder, who analysts previously said would be able to convince financial institutions to subscribe.
“I thought Emaar money will come into the issue,” an analyst with a global financial services provider said. “I think investors were concerned about how the stock will do after the listing. Emaar’s IPO performance has got to do more with the market conditions than the company, though I do think the company’s valuations were high.” He didn’t want to be named because he is not authorized to speak with the media.
Before the issue opened, the venture capital arm of Citigroup Inc., Citi Venture Capital International, sold 40% of its holding in Emaar MGF to DE Shaw, a global investment firm. Citi originally held 11.69 million shares, and the 4.7 million shares it sold to DE Shaw have been valued at Rs325 crore. The valuation for the stake sale was based on the upper end of the price band fixed by Emaar—initially priced between Rs610 and Rs690 a share, which later was revised to Rs530-630 a share.
In a separate transaction, two of India’s large media houses, New Delhi Television Ltd and Bennett, Coleman and Co. Ltd had also picked up minority stakes in a pre-IPO placement for Rs25 crore each. IFCI Ltd, the Delhi-based financial institution, also participated in the pre-IPO placement and paid Rs50 crore. The stakes picked up by the media firms account for a fraction less than 1% of shareholding in Emaar MGF.
“We will decide on this (the pre-IPO placement) in consultation with the investors and investment bankers,” the company spokesperson said.
Emaar MGF was being advised by Enam Securities Pvt. Ltd and DSP Merrill Lynch Ltd, which are the global coordinators. Citigroup Global Markets India, Kotak Mahindra Capital, HSBC Securities and Capital Markets (India), JPMorgan India, Goldman Sachs (India) Securities and ICICI Securities Ltd were also advisers to the issue.
Himangshu Watts of Reuters contributed to this story.