NHPC’s $1.25 bn IPO oversubscribed on robust demand

NHPC’s $1.25 bn IPO oversubscribed on robust demand

Mumbai/New Delhi: The state utility NHPC Ltd’s up to $1.25 billion IPO was subscribed more than 3 times by late afternoon on Friday in a response that may push the government to offload stakes in other firms.

Robust investor demand for NHPC, the first IPO by an Indian state company in 18 months, means the deal is likely to be priced towards the top of its indicated range of Rs30-36 per share.

The deal, priced at a discount to listed peers, was fully covered within minutes of opening, banking sources said, and by 4.00 pm the 1.68 billion share offering was subscribed 3.33 times, the National Stock Exchange said.

“State-run firms are largely sought after. One for their valuation, two for some of the hidden positives they carry," said Deven Choksey, chief executive of brokerage KR Choksey.

“NHPC, a hydro power generator, for instance is a potential candidate to earn carbon credits," he said.

Another state heavyweight, Oil India Ltd, is readying a $500-$600 million IPO in September, bankers have said. Other state firms looking at share sales include top power generator NTPC Ltd, Shipping Corp Of India and Rural Electrification Corp.

At least a dozen state-run firms are considering either IPOs or follow-on offerings as they gear up for expansion in Asia’s third-largest economy and India’s government looks to trim its deficit.

Government share offerings in India have historically been priced to sell and delivered better market returns than private sector listings in recent years.

“Global liquidity is flush and foreign funds are chasing Indian paper. This is the time to act mature and be sensible in valuation. High prices can scuttle the party," Choksey said.

Equity wave

Indian companies have raised about $8.5 billion through share sales so far this year, surpassing the total for all of 2008, powered by a sharp rally in the stock market that has been fuelled by an influx of foreign funds.

The Bombay Stock Exchange benchmark, the Sensex, has risen over 90% from lows in early March, driven by around $9 billion in net foreign fund inflows into the country’s shares, although it fell 2.28% on Friday.

Credit Suisse expects demand for new India equity issuance to remain strong and said it expects funds raised from share sales to reach $20 billion by year-end.

NHPC’s price range represents a valuation of roughly 2 times its book value, or half the level of listed peers, helping it to draw strong demand.

NHPC’s IPO follows the share sale by private-sector utility Adani Power, which raised about $630 million recently in an offering that was fully subscribed within an hour of opening. The Adani was eventually more than 20 times subscribed..

“All PSU (Public Sector Undertaking) IPOs have been well received and have generally reaped good return to investors in the long run," said Amitabh Chakraborty, president for equities at Religare Capital.

Indian state companies that listed since 2004 have shown share price gains on average of 140% compared with just 3.5% for their private sector peers, a study by deal tracking firm SMC Capital showed.

The Indian government is coping with a 16-year high fiscal deficit and has announced a record $90 billion borrowing plan. A sell-down in stakes in state-run companies is expected to be seen by debt investors as a sign of fiscal responsibility and commitment to reform.

NHPC has an installed capacity of 5,175 megawatts and is building another 4,622 megawatts, and its proven ability to complete projects also made its IPO popular, analysts said.

Enam Securities, Kotak Mahindra Capital Co and SBI Capital Markets are managing the NHPC deal.