New Delhi: Developer Emaar MGF Land Ltd, which was attempting India’s third largest initial share sale, buckling under a poor show by retail investors, slashed its offer price for a second time and extended its offer by three days, damping an ambitious attempt to raise more than Rs6,400 crore to fund land purchases for property developments.
The failure of Emaar to excite investors also reinforced a growing realization in India’s capital markets that the heady days of all IPOs getting routinely oversubscribed are perhaps over amid global market turmoil that continued unabated on Wednesday and caused India’s benchmark Sensex index on the Bombay Stock Exchange to fall 2.8% to 18,139 points. Another IPO, from Wockhardt Hospitals Ltd, was faring even worse with just 13% of shares on offer finding buyers.
A tepid response to its initial share offer had prompted Emaar MGF to lower the price band of the offer a day before it opened on 1 February, even though the benchmark Sensex hadn’t fallen to 14,000, a level at which the company had previously said it would reconsider its pricing. In the last month, the Indian share market has swung widely.
On Wednesday, Emaar had to lop off another Rs10 from the lower end of its price band, because stock market regulations don’t allow firms to extend the date without reducing the price, binding the offer at between Rs530 and Rs630.
It had opened its road show with a price band of between Rs610 and Rs690.
About 75% of the issue of 102.57 million shares was subscribed. Only 12.74 million of the 30.77 million shares on offer for retail were subscribed as per the latest data on the National Stock Exchange site. Emaar, however, managed to get a better response from institutional investors, the bulk of the buyers for its shares. They subscribed 53.76 million shares of the 61.54 million shares on offer.
“The pricing wouldn’t have made a difference to the IPO,” said Dhirendra Kumar, chief executive officer of Value Research, a research outfit on mutual funds and stock market, which doesn’t invest in individual companies and IPOs. “If investors were excited about the IPO, they would have subscribed at Rs500-600 levels. Real estate is out of favour with the market.”
Emaar joins health-care chain Wockhardt, which was also forced to extend the time for its share offer along with lowering the price, as both firms tried to second-guess what investors would find attractive. This isn’t the first time that India’s stock market, which touched record levels in the past one year, has gone through a roller coaster that has forced companies to revise their offer downwards.
Just last year, Bangalore-based real estate developer Puravankara Projects Ltd reduced its price band and extended the period of its initial offer because of volatility in the market. Its shares last closed at Rs363.35, little changed from its August listing price of Rs362.30, which was at a discount to its issue price of Rs400. Deccan Aviation Ltd, which recently merged with Kingfisher Airlines Ltd, had even more trouble taking its share offer off ground in 2006 and lowered its price band during the offer. It raised nearly 16% lower than it had planned after the markets nosedived in June, just before the offer and some investors felt the stock was too expensive at the time.
Reliance Power Ltd and DLF Ltd have been the two biggest share offers in India in that order.
Emaar MGF is a joint venture between Dubai’s largest developer Emaar Properties PJSC and New Delhi-based developer MGF Developments Ltd.
Emaar Properties, which is also the largest publicly traded real estate developer in West Asia, was punched by investors with the stock declining 4% to 12.1 dirhams, in early trade after news of the lukewarm response to the India offer got around, according to Bloomberg.
“I think Emaar will work hard on making the IPO work,” Kumar said. “They would be flexing their muscles to make it work. I think it is unlikely retail portion will be fully subscribed because you need a momentum for retail investors to subscribe.”
In the last few weeks, the Indian stock market, along with other indices worldwide, has been mimicking the volatility of global markets from the fallout of the subprime crisis in the US, where banks worldwide have taken more than $100 billion in write-downs after being left with bad home loans. Fears of more bad news and that financial institutions will cash out gains in the stock markets to make up for the losses, have led to excess volatility.
“In an initial public offering (IPO) it is always the last day of the IPO which is important,” Manoj Jain, an analyst with domestic brokerage firm Asit C Mehta Investment Intermediates Ltd, said.
“Emaar MGF is doing roadshows now. So, their institutional investors portion might get subscribed fully. Retail investors are more concerned about what is happening in the market. But the issue will get fully subscribed because of the institutional investors,” he said before the issue date was extended.
Rachna Monga in Mumbai contributed to this story.