Why companies prefer GDRs to QIPs??

The last two weeks have seen many companies raise capital but not via qualified institutional placement (QIPs) which was the flavor of the last season but via global depositary receipt or GDR’s and one company even did an american depositary receipt (ADR). So why has this route become a favorite amongst companies and what is the response like from institutional investors across the world.

Sumant Sinha, COO of Suzlon Energy, which closed its GDR issue last week of a little over USD 100 million and also did almost a USD 100 million of an non-convertible debentures (NCD), spoke on the issue.

"If one looks at GDR versus QIPs, there is more broad based interest for QIP than it is for GDR. The GDR has a bit of a lock-in issue involved as well where as a QIP does not. It is really a question of which instrument the company has regulatory approvals for,” Sinha said.

Here is a verbatim transcript of the exclusive interview with Sumant Sinha on CNBC-TV18. Also watch the accompanying video.

Q: What is this new trend of GDR versus QIP and why do companies prefer to do a GDR as opposed to raising money through a QIP?

A: I can only comment as regards us, in our case we did not have enabling resolutions in order to do a QIP and so therefore we had to go forward and do a GDR, which is something that was possible from a regulatory standpoint. So it was really just that and nothing else beyond that, if you look at GDR versus QIPs you might argue that there is more broad based interest for QIP than its for GDR. So it might just be a company specific thing which is more of a regulatory issue than anything else.

Q: A lot of people who are bankers that I was speaking to also told me that, those that had QIP approvals from last year proceeding to the time when Sebi changed the pricing guidelines prefer not to use those approvals and are instead going the GDR route, so you see some rationale there?

A: To be honest, I cant, because it appears to me that the QIP instrument is a very flexible one and you can pretty much address the investors that you need to. If you were to do an ADR that’s a different matter because that is probably listed on the US stock markets and broadens the investor base to some extent. But in GDR and QIP I really cant see that much of a difference with respect to the investor base. The GDR has a bit of a lock in issue involved as well where as a QIP does not. So, on the other hand not all investors can buy into QIPs, so there is a little bit of a tradeoff between QIP and GDR, but it really is a question of which instrument the company has regulatory approvals for and there is not that much in it between the two to be honest.

Q: You said that if broad base is the investor base, so was there some sense that the appetite amongst the regular institutions that are usually part of a QIP was waning to some extent and therefore you had to reach out to investors that didn’t have access let’s see via a QIP but a GDR to invest in companies like yours?

A: I would not really say so because the difference is not that large and ultimately there are dedicated investors who invest in India and they have the facility to invest in GDR or QIP and they form the core part of the investor base. So to be honest there isn’t that much of a difference between those instruments.

NHPC IPO to open on Aug 7;price band set at Rs 30-35/sh

SK Garg, CMD, NHPC said, IPO price band set at Rs 30-36 per share. “The price band is based on 2 times price-to-book ratio," he said. The IPO issue will open on August 7 and close on August 12," Garg added.

He further said, the overall mandate from the government is 24%, but they have asked the company to go for in the first tranche with only 10% of fresh equity and plus 5% of disinvestment. “We have mandate to issue up to 24% stake,” he added. The company’s current capacity was at 5175 MW and plans to increase to 9600 MW by 2013, Garg added.

Here is a verbatim transcript of the exclusive interview with SK Garg on CNBC-TV18. Also watch the accompanying video.

Q: Share with us the price band and how did you arrive at the pricing?

A: The price band has already been decided by the board and we are going ahead with that, it is Rs 30 at the lower end and upper band is Rs 36. The valuations which we have done and then we had taken it to the government and the board, it is basically on the book value to price which we have worked out. We had taken a decision that to price it in Rs 30-36 band and we have decided to open up on August 7 and issue will be closing on to 12 August 2009.

Q: You are raising 15% out of which 5% is the government’s disinvestment which means it goes straight to the government and you get 10%, how much does that 10% translate into at the price of Rs 30 or at Rs 36 and what are you planning to do with that money?

A: The overall mandate from the government is 24% but they have asked us to go for in the first tranche only 10% of fresh equity and plus 5% of disinvestment, of the government’s own equity. So in all we are coming to the market in 15%, if we take the upper band of Rs 36, then it translates into Rs 6,000 crore, so out of Rs 6,000 crore 2/3rd will be flowing to us say Rs 4,000 crore and Rs 2,000 crore will go to government of India. Rs 4,000 crore inflow to us, which will be spending on our projects which are under construction right now, we have seven projects lined up which will be funded out of this equity inflow to the company and 1/3rd will go to the government of India.

Q: You are having the price to book value of 2, lets see one year ahead, on an expanded equity what would be your price to book, looking at 36 being the price, what would it be in the next year or the year after next because you are also adding significant capital investments, have you looked like how it looks in 2010-2012 assuming the Rs 36 price?

A: It will certainly be better if you ask me because we are on a mega expansion spree right now. We have lined up almost 11 projects which right now we are working and one by one which are coming on steam also. So with that, what we are hoping is that by the end of 2013, our capacity would be touching around 9,500 MW. So a lot of investment as you rightly mentioned it will be coming and fructifying into and giving yield on that ROE also. So there will be an impressive book value as against the current which we have around 2 plus.

Q: Could you just walk us through going into September, then December and then going into March quarter, how much new incremental capacity do you see it being added or is most of it back ended, so perhaps it is coming in 2010?

A: Right now my capacity is 5,175 MW with 13 power stations. I will be commissioning one more project this year which is 120 MW and it may come in the month of December and January this year itself, it is in Jammu and Kashmir. Apart from that, another six projects we will be delivering in 2010-11 and the total capacity will be around 2,200 MW, rest one project we are likely to give in 2011-12 and one would be coming in 2013 December. So in all by 2013 or so, the total capacity of this company is nearing 10,000 MW, that will be our capacity. So one after another, 2010 is the base year where we are going to deliver almost six projects to the nation and so as you see, huge capacity is going to be added and followed by other big projects which we have got time which is Arunachal Pradesh, which partly it will come in this plan and partly it will be just coming on the first year of the 12th Plan period and one project we are slated to give in 2013 December which is in Himachal Pradesh.

Adani Power IPO subscribes around 4 times on day 1

Initial public offering of Ahmedabad based Adani Power (APL), promoted by Adani Enterprises, has received overwhelming response on day 1. The issue managed to achieve full subscription with in hours of its opening. It has been subscribed close to around 4 times (3.96 times) on close.

A total of 985,943,010 bids were received out of which 4,285,905 bids were received at cut-off price.

issue managed to achieve full subscription with in hours of its opening.As at 1:45 p.m, the issue was subscribed 3.87 times. A total of 962,302,445 bids were received out of which 1,306,305 bids were received at cut-off price

The company has proposed a public issue of approximately 301.65 million equity shares of Rs 10 each for cash at a price to be decided through 100% book building process. The issue closes on July 31, 2009.

The price band of the issue has been fixed at Rs 90 to Rs 100 a share. It hopes to raise around Rs 30.16 billion at cap price. The net issue will constitute 13.47% of the post issue paid up capital of the company.

The issue has been graded by ICRA as IPO Grade 3, indicating average fundamentals.

The equity shares of the company are proposed to be listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).

DSP Merrill Lynch, Enam Securities (P), IDFC-SSKI, Karvy Computershare (P), JM Financial Consultants (P), Morgan Stanley INDIA Company, ICICI Securities, SBI Capital Markets are helping the company in the fund raising process.

APL is the first IPO that will follow the anchor investor norms, made mandatory by SEBI. The company has completed allocation of shares to anchor investors. It allocated 52.50 million shares to the domestic and foreign institutional investors for close to Rs 5.02 billion.

Foreign institutional buyers include T Rowe Price, AIC, Ecofin, TPG and Legg Mason. Among domestic institutions, Sundaram Mutual Fund pumped in Rs 810 million in Adani Power and was allotted shares for Rs 95 each while TPG and Legg Mason were allotted shares through Credit Swice and CLSA, respectively. T Rowe Price got the highest allocation of Rs 2.20 billion for equity share of Rs 95 each. AIC, Ecofin, TPG and Legg Mason invested Rs 242 million, Rs 244 million, Rs 800 crore and Rs 72.4 crore, respectively.

The company plans to deploy the issue proceeds to part finance the construction and development of Mundra Phase IV Power Project for 1,980 MW, funding equity contribution in its subsidiary Adani Power Maharashtra to part finance the construction along with development cost of power project for 1,980 MW at Tiroda, Maharashtra. Besides this, the issue proceeds would also be deployed for general corporate purposes.

Of the total equity float at least 60% of the net issue shall be allocated on a proportionate basis to QIB bidders. 5% of the QIB portion shall be available for allocation on a proportionate basis to Mutual Funds only and the remainder of the QIB portion shall be available for allocation on a proportionate basis to all QIB bidders, including mutual funds, subject to valid Bids being received at or above the Issue Price. If at least 60% of the Net Issue cannot be allocated to QIBs, then the entire application money will be refunded forthwith. Further, not less than 10% of the net issue shall be available for allocation on a proportionate basis to non-institutional bidders and not less than 30% of the Net Issue shall be available for allocation on a proportionate basis to retail individual bidders, subject to valid bids being received at or above the issue price.

Promoted by Adani Enterprises, Adani Power (APL) is a power project development company. APL currently has two projects namely Mundra Project (in four phases of developments) and Tiroda Project (in two phases via its subsidiary Adani Power Maharashtra) with a combined installed capacity of 6,600 mega watt (MW). It is also planning to develop two thermal power projects at Dahej and Kawai with a combined installed capacity of 3,300 mega watt (MW).

The company intends to sell the power generated from these projects under a combination of long-term power purchase agreements to industrial and state-owned consumers and on merchant basis.

With the commissioning of the power projects, the Adani Group aims to be vertically integrated in power sector value chain through presence in related activities such as coal mining, coal trading, shipping, power generation, power transmission and power trading.