Mumbai: Coal India's $ 3.5 billion IPO, the country's largest, was more than 15 times subscribed on its final day, giving the government power to price the issue towards the top of its range and building momentum for upcoming state offers.
India is selling stakes in some 60 firms over the next few years, and the enthusiastic response to Coal India contrasts with sluggish demand for some of its recent offerings and adds pressure on New Delhi to price future deals attractively.
"They will have to leave something on the table for the investors if they want good response for other IPOs that are lined up." said Neeraj Dewan, director of Quantum Securities.
At the top of its price range, Kolkata-based Coal India, which accounts for nearly 80 per cent of coal output in Asia's third-largest economy, would be worth $ 35 billion, ranking it seventh among India's listed firms.
Coal India shares will begin trading on November 4.
Individual investors, who have not bid for all the shares available to them in some recent government offers, applied for nearly two times the shares on offer to them, exchange data showed, attracted by the added enticement of a 5 per cent discount.
"It is the biggest issue ever from the government and there are many more lined up. That is why they have ensured with the pricing in place that this one has to be a success," said Rajnikant Shah, a Mumbai businessman who applied for shares.
The institutional order book, which closed on Wednesday, was heavily oversubscribed, powered by orders worth about $ 27 billion from foreign investors. Those funds poured in on top of record flows from overseas into Indian stocks this year that recently pushed the rupee to a 25-month high.
"From a sentiment perspective, it's a good booster for the government's share sale plans going forward," said Sanjay Sharma, managing director and head of equity capital markets at Deutsche Bank, one of Coal India's IPO bankers.
Strong institutional demand means the offer is likely to price at or near the top of a 225-245 rupees per share range when final pricing is decided over the weekend or early next week.
A dominant position in a country that is heavily reliant on coal-fired power and a valuation considered attractive relative to peers has made Coal India a near must-own for investors seeking broad exposure to an economy growing at 8.5 per cent.
Risks exist, including a Maoist insurgency in key mining areas and environmental challenges to new mining projects in India. Coal India's prices are about 60 per cent lower than international prices, in part because of comparatively low quality coal.
Pricing power
India will have less pricing flexibility when it offloads stakes worth roughly $ 2.8 billion combined later this year in Power Grid Corp and Hindustan Copper, which are already listed.
Among state IPOs on the horizon, Manganese Ore India Ltd is readying an offering to raise up to $ 270 million.
"If there is money on the table for investors, they can be sure it will have a robust participation," said Tarun Shah, chief executive of retail-focused brokerage Sharekhan, referring to offers from state companies.
Coal India's IPO will surpass Reliance Power's $ 3 billion listing in 2008 as India's largest new issue, and comes to market amid a flurry of big deals in Asia.
Demand for coal is forecast to grow 11 per cent a year in India, which aims to halve its peak-hour power deficit of nearly 14 per cent over the next two years.
At the top of its price range, Coal India would be valued at 15.7 times trailing earnings. China's Shenhua Energy trades at 16 times trailing earnings, while Indonesia's Adaro Energy has a ratio of 20 times. US miner Peabody Energy trades at 25 times earnings.
Morgan Stanley, Citigroup, Kotak Mahindra Capital, Enam Securities, Deutsche Bank and Bank of America-Merrill Lynch are managers on the offer. ($ 1= Rs 44.4)
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