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.

RIL Q1 net down 13%; experts see stock correcting on Monday

Market bellwether Reliance Industries' Q1 FY10 results have come in as a disappointment. Experts see the stock correcting on Monday. SP Tulsian of sptulsian.com sees the stock falling by Rs 175-200 on Monday, while Deepak Pareek of Angel Broking expects the stock to open 3-4% lower. The stock has a weightage of 12% on the Nifty leading to fears that it will pull the market down.

India's largest private refiner's standalone net profit declined by 11.5% to Rs 3,636 crore from Rs 4,110 crore in the same period of last year. Standalone net sales slipped 22.9% to Rs 32,055 crore versus Rs 41,579 crore year-on-year. Earning before interest, tax, depreciation and amortisation fell 3.3% to Rs 5,921 crore from Rs 6,121 crore. Operating profit stood at Rs 4,293 crore and standalone petchem revenues declined 22.4% to Rs 11,540 crore from Rs 14,871 crore last year.Gross refining margins have come in at USD 7.5 per barrel as against the street's expectations of USD 8-8.5 per barrel.

Stock market terms

Bull—a stock market operator who believes that share prices are
going to the bull, giving an upward thrust. The bull's action causes
buying pressure in the market place and pushes up the share prices.

Bull cycle—an extended period during which share price is generally
rising and the stock market indices show an upward move.

Bullion—gold, silver, or any other precious metal in bulk. Not in
the form of coins.

Bull market—continue rise in the price of stocks, sustained by
buying pressure of investors or bulls. News of favorable economic
growth, political development budgetary concession etc.can cause a
bulls market.

Bull position—buying without making a correspondence sale, hoping to
sell the shares at higher prices when market is to rise. Also known
as long position.

Bull Run—continuous uptrend of bull market.

Breakout—when shares move between support level and resistance level
for a time period and then shares moves any side either upward or
downward this is called breakout. Breakout means to break certain
levels.

Broker---A member of the stock exchange who is licensed to buy or
sell shares on his own behalf or on the behalf of his clients. He
charges commission in fix % on the gross value of deal. Brokers also
provide various financial services like dealing in bonds, commodity,
manages portfolio etc.

Bubble--- when a stock price is pushed to an abnormally high level,
not supported by any strong reason and fundamental, it is said to
have developed a bubble .

Bull—a stock market operator who believes that share prices are
going to the bull, giving an upward thrust. The bull's action causes
buying pressure in the market place and pushes up the share prices.

Bear spread—Option making strategy in which one buys a combination
of calls and puts of the same security at different strike prices to
make profit from fall of price of security .alternatively one buys a
put option of short maturity and another of long maturity to profit
from the difference between two put options as price falls.

Bear Trap----an movement of share price downwards, encouraging
investors to sell short. When market gets correct itself and prices
goes up investors get in bear trap.

Beating The Market getting a higher return on investment is higher
than the market averege possible but difficult

Bid Price—It is price which at which one is ready to buy share.

BIFR—Board for industrial and financial reconstruction.

Blue chip stock—shares of well knownand established companies which
have shown consistent growth over past many years and is expected
to repeat the same in future and have better prospectus.

Mahindra Satyam News

Mahindra Satyam, formerly Satyam Computer Services, continues to shine in the stock market. The stock, which has rallied more than 30% in the last seven days, crossed Rs 100 on July 23, and is now back among the top-five Indian IT companies’ list in terms of market capitalisation (with market cap of about Rs 12,000 crore) after Infosys, TCS, Wipro and HCL Tech.As of today, Mahindra Satyam’s market cap is greater than that of its parent company, Tech Mahindra.

Attributing the recent move up in its stock price to a bridge-up, Sanju Verma, CEO - Institution Biz, Proactive Universal Group, said the stock was still trading at a discount. “A lot of analysts are still not factoring in the 1100-1200 acres of land that Satyam holds. If they assume the company has Rs 300 crore of liabilities outstanding against that, even then, the land is still valued at something like close to Rs 11 per share. If you add this Rs 11 per share to the Rs 7 EPS you are talking of purely on the back of earnings momentum, the stock is still available at dirt cheap multiples,” she said.
On technicals, Rajat Bose, technical analyst said, "It’s a buy and it was a buy, the next target is Rs 120 and probably that target will be met sooner or later and once that level of Rs 120 is crossed then it is going to move further up. So if you ask me what are the sectors that I think in the next leg of upswing, IT is definitely one and Mahindra Satyam will definitely do well there."
In fact, the stock in back in the good books of mutual fund managers.

Today's market

The benchmark indices ended higher and continued their run-up for the second straight day. Huge upsurge in auto, realty and metal stocks helped the Nifty to end the week above the 4550 level. Power, telecom, technology and capital goods stocks were the other gainers. The markets rallied for the second straight week post the budget week.

Over 2-2.5% surge in US markets late Thursday night due to good earnings and economic data, more than 0.5% upside in European markets and 0.4-2% gains in Asian markets also helped our markets to remain on the higher side in the second half of the trade. They were volatile in the first half of the trade.

Avul Pakir Jainulabdeen Abdul Kalam

All during his five-year tenure, the 75-year-old A P J Abdul Kalam's
preferred menu at the table was idli, dosa and sambar besides curd-rice,
pickle and pappad, recalls a senior aide.

A habitual late-eater at night, the missile-man had made it clear to the
comptroller of household in Rashtrapati Bhavan to prepare all his meals
only from the general kitchen, which caters to other staff members in the
Presidential estate.

Stopping the practice of a number of attendants in waiting till the
President finished his dinner and retired for the night, Kalam insisted on
holding back only one person to warm up his meals, which he used to take
well-past midnight.

There have been occasions when Kalam required some help from other aides
during the night. Leaving aside protocol, Kalam, who has earned a
reputation of being a people's President, picked up the phone and directly
seek the information he required.

"He was a no requirement man," recalls his Press Secretary S M Khan.

During the entire tenure, the family kitchen specially meant for the
President was never operational. Not even when his 50-odd relatives had
come to the Rashtrapati Bhavan.

Kalam insisted that he make the payments for the expenditure incurred
during the stay of the relatives. The President, who skips lunch, had also
a love for fruits of any type. "Anything that was seasonal would satisfy
him. We had created a verandah garden for him in which citrus japonica
(China orange) grew.

"Though tasting very bitter, the President used to have them because of
its rich Vitamin-C content," OSD Brahma Singh said.

Defying the age-old principle of early to bed..., Kalam used to sleep
around 1-1:30 am and used to get up at around 6:30 am. He was the only
President, whose daily list of engagement was about 10.

Recounts his secretary P M Nair about his experience four years back. "It
was the morning of July 14, 2003. 8:40 am. The rax in my office rang. It
was the President at the other end."

In his usually cool and composed voice, Kalam told him "Mr Nair, last
night I could not sleep because my bedroom was leaking.

"I froze. Any other President, and my head would have rolled, though no
fault of mine," Nair said in his 'thank you' note to officials of
Rashtrapati Bhavan.

Sensing his embarrassment, the rocket-scientist spoke in a comforting
tone. "Don't worry, I know you will immediately set things right in my
bedroom but I am worried about those houses in the President's estate
where they may not have a second bedroom to shift to when the only one
that is available leaks."

Nair responded saying, "Sorry sir, I shall act just now."

Basic Terms - Must know

Asset
Anything on a company's books considered as having a posiaaative
monetary value. Assets include all things like holdings of obvious
market value (cash, real estate), (inventory,
aging equipment), and other quantities (pre-paid expenses,goodwill)
considered an asset by accounting conventions but possibly having no
market value at all.

Book value
Per-share value of shareholders' equity excluding goodwill and
other intangible assets.

Cash flow
Cash flow is essentially the movement of money into and out of your
business; it's the cycle of cash inflows and cash outflows that
determine your business' solvency.

Cash flow analysis is the study of the cycle of your business' cash
inflows and outflows, with the purpose of maintaining an adequate
cash flow for your business, and to provide the basis for cash flow
management.

Compound Annual Growth Rate - CAGR
The year-over-year growth rate of an investment over a specified
period of time.

The compound annual growth rate is calculated by taking the nth root
of the total

percentage growth rate, where n is the number of years in the period
being considered. This can be written as follows:

Debt-to-Equity Ratio
A company's debt divided by its equity . This ratio is used as a
relative measure of debt, but it

isn't always useful since equity is a complicated number. It's
sometimes better just to look at a

company's total debt per share, which you can either look up or
calculate since Debt per share =

eps/ roe x Debt/Equity:

Depreciation
Method to account for assets whose value is considered to decrease
over time.

The total amount that assets have depreciated by during a reporting
period is shown on the cash

flow statement , and also makes up part of the expenses shown on
the income statement . The

amount that assets have depreciated to by the end date of the period
is shown on the balance sheet.

EBIT
Earnings Before Interest and Taxes; intended to be a measure of the
amount of cash generated
by a company's operation

EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization;
intended to be a measure of the

amount of cash generated by a company's operations (but leaving out
the costs of financing and

taxes - the "I" and the "T").

The danger with EBITDA is that if the "D" and "A" represent a "using
up" of an asset that will have

to be replaced in the future, then they really are operations-
related expenses, making EBITDA too liberal a number.

EVA

Economic Value Added, a measure of the superiority of the return a
company is able to realize on

invested capital above the baseline return expected by the
investment community. The formula is

EVA = NOPAT - ( C x Kc )

where C is the amount of capital a company plans to invest in a
project, and Kc is the cost of

capital, i.e. the return rate expected by investors. Positive EVA
means the project will add value

for shareholders; negative EVA means they would be better off if
management just gave them the

money as a dividend.

EVA is analogous toearnings; but where earnings expenses debt
financing only, the C x K term

c

in EVA is expensing the cost of all capital, equity as well as debt.

Equity
The portion of a company's assets that the shareholders own, as
opposed to what they've

borrowed: equal to total asset minus liabilities. Also
called "owners' equity" or "shareholders' equity".

Liability
An obligation to pay. These include accounts payable, and bond and
bank debt.

Liabilities are shown on the balance sheet Note that a liability is
not necessarily an evil thing for a

company. Technically it's just an asset that they have temporary
control over but don't own. If it's

a useful asset and if the cost of "borrowing" it is cheap, then a
liability can be a positive thing.

One example: if a retailer sells a gift certificate, they have to
show a liability for the value of the

merchandise they will be obligated to hand over when the giftee
shows up to redeem it; but in the

meantime they already have the cash the gifter paid, and they can
use it any way they want -- this

liability is really an interest-free loan

Operating Expenses
Expenses associated with running a business but not considered
directly applicable to the current

line of goods and services being sold. These include Sales and
Marketing, R & D, and General

and Administrative costs (including the salaries of people working
in these areas).

Operating Income
Operating Income is the pre-tax, pre-interest profit from the
company's operation

Operating profit margin
Ratio of operating income to sales revenue

P/E Ratio
The ratio of a stock price to its company's annual earning per share

Return on Assets
Earning divided by total assets

This number tells you "what the company can do with what it's got",
ie how many dollars of profits

they can achieve for each dollar of assets they control. It's a
useful number for comparing

competing companies in the same industry. The number will vary
widely across different

industries. Capital-intensive industries (like railroads and nuclear
power plants) will yield a low

return on assets, since they have to own such expensive assets to do
business. (And if they have

to pay a lot to maintain these assets, that will cut into the ROA
even more, since the maintenance

costs will decrease their earnings). Shoestring operations (software
companies, job placement

firms) will have a high ROA: their required assets are minimal.

Return on Equity
Earning divided by equity

The idea is that this tells you the number of dollars of profits the
company can earn for each dollar

of shareholders' equity; but return on asset is probably a better
number to look at. (After all, their

profitability is a function of all assets they control, not just of
the equity portion of assets. Note that

ROE is bigger than ROA, since equity is a subset of assets).

Balance sheet - Example

Balance sheet

The Basics

Accounting contains three financial statements:

Balance Sheet The Balance Sheet shows a snapshot of your company right now--how it is doing financially at the present time.

Income Statement The Income Statement is the camcorder that records a period of time; in accounting terms, it's to see how you received the earnings (i.e. net profits) between your beginning balance sheet to the ending balance sheet for a certain period.

Cashflow Statement The Cashflow Statement keeps track of your company's cash as it flow in and out during a time period.
Balance Sheet

The Balance Sheet is divided into two financially equal sides, so they can "balance."

Assets reside on the left column, and Liabilities + Owner's equity reside on the right (i.e. Assets = Liabilities + Owner's Equity).

The key component for the balance sheet is to connect the things (left side) to the people who own these things (right side).

Assets (i.e. "What we have") are organized on the balance sheet in descending order of liquidity (i.e. how easy it is to covert an asset into cash).

The following represents the order on the Balance Sheet:

* Cash - readily available funds you can use now
* Accounts Receivable - money owed to you
(e.g. for items you sold on store credit but haven't received money)
* Inventory - all available materials that will be sold; includes rawmaterials lemon, sugar, water) and finished goods (lemonade)
* Prepaid Expense - expense you paid beforehand, to be used in the future
* Fixed Asssets - items you use over and over, and aren't normally for sale

Liabilities + Owner's Equity (i.e. "Who owns it") are organized into the following:

* Accounts Payable (Liability) - the value of the inventory you borrowed & now owe; usually have to be paid back in 30 daysNotes Payable (L) - the loan amount in money you borrowed and must owe; payable over long-termTax Liability (L) - taxes you owe the government Original Investment (Owner's Equity) - your personal money invested in your business Retained Earnings (O) - earnings from past accounting periods; shows retained "net profit"
* Earnings [Week, Month, Year] to Date (O) - earnings from present accounting period; shows period's "net profit" (i.e. bottom line)

Income Statement

The Income Statement acts as the camcorder that illustrates how the Net Profit was gained between the beginning balance sheet and the ending balance sheet. It shows if your business was profitable in a certain period. To get Net Profit, use:

* Earnings = Sales - (Costs of Goods Sold + Expenses)Gross Profit = Sales - Cost of Goods Sold Net Profit = Gross profit - Expenses Note: We haven't deducted taxes, and dividends paid. These will subtract the earnings (i.e. Net Profit).

Cashflow Statement

When learning how to read a financial statement, remember this: The Cashflow Statement is probably the most important sheet in your small business accounting papers, as it keeps track of your cash.

Remember that you can be profitable, but without necessary cash, your business is in serious trouble. You can't spend your earnings, otherwise known as "paper profits"; you can only spend cash to fund your operating capital (e.g. fixed costs).

Good cashflow management means delaying your payables as long as you can, while speeding up your collection of accounts receivable money owed to you.

The cashflow statement accounts for collections, inventory paid, fixed asset investment, and expenses paid.

Learning how to read a financial statement is not that difficult. Most people avoid it because of this reason.

Once you understand the basic concepts on how to read a financial statement, you'll be on track to building a great company.
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