Thursday, October 21, 2010

Coal India IPO subscribed 15.28 times

The initial public offer (IPO) of India\'s largest coal producing company Coal India (CIL) has seen huge response from investors and has received bids for more than USD 53 billion worth of equity shares as against issue size of USD 3.5 billion on last day.

The issue has been subscribed more than 15.28 times, including major contribution from qualified institutional buyers (QIBs) followed by non-institutional investors (NIIs) and retail investors.

For the reserved portion of QIBs (which closed on Wednesday and was subscribed 24.7 times), foreign institutional investors put in bids for USD 27.5 billion worth of equity shares followed by domestic financial institutions and mutual funds with USD 10 billion and USD 1.4 billion, respectively. (USD 1 = Rs 44)

The reserved portion of non-institutional investors was subscribed 25.4 times and retail 2.31 times while employees\' portion was subscribed just 0.1 times.

Institutional investors have gone all out for Coal India with the IPO getting highest-ever demand received by an Indian issue. QIB generated demand for CIL was at Rs 1,73,398 crore with 100% margin while Rs 1,88,923 crore with 10% margin in case of Reliance Power IPO, which launched in 2008. In case of Reliance Power, QIBs\' portion had subscribed 30.68 times.

A price band of the issue is at Rs 225-245 a share. Prasad Baji of Edelweiss Securities said that the market needs to treat CIL as an utility play. According to him, CIL's fair value is at Rs 316 per share as coal prices are unlikely to come down in India. \"Our assessment of fair value is Rs 316 based on a DCF valuation. Even on EV/EBITDA basis we are getting at Rs 300 price so there is some amount left on the table in this issue,\" he said.

However, Paresh Jain of Angel Broking differs. According to Jain, CIL's fair value is at Rs 294 per share, which is based on the DCF valuation methodology. \"We feel that the downside from the issue price is capped. There are no anchor investors in this particular issue. Most of the long only issue funds that need a good chunk of the stock would have to come and purchase it from the open market. That would give a boost to your stock price. I would advice investors to hold on to the stock because clearly our country is deficit in coal. Going forward as you see the washeries coming in, you will see earnings growth much faster 2013 onwards,\" he reasoned.

It would be the largest ever IPO by an Indian company. All issue proceeds will be received by the selling shareholder (GoI), which stake will be 89.99% post the issue. The offer shall constitute 10% of the post offer paid-up equity share capital of company.

However, Baji says, 26% mining profit share is a key risk, not just for Coal India but for the entire mining space. \"In case of Coal India, there are certain mitigating factors. They spend 4% of their revenues on social activity. There is some case here that the management has been speaking to set it off against any kind of distribution of profits.\" he explained.

Book running lead mangers to the issue are Citigroup Global Markets India Private Limited, Deutsche Equities (India) Private Limited, DSP Merrill Lynch Limited, ENAM Securities Private Limited, Kotak Mahindra Capital Company Limited and Morgan Stanley India Company Private Limited.

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