Corporate Finance : India’s biggest ipo ever is first of 35 this year


Mumbai-based Reliance Power raised $3 billion in January in India’s largest-ever initial public offering. The shares sold represented a 10% stake in the company, which aims to provide electricity to power the country’s fast growth but which so far doesn’t have a single operating power plant. That didn’t stop investors from submitting $28 billion in bids in what promises to be a big year for Indian equity issues. The 228 million shares Reliance Power offered on January 15 sold in less than a minute.

In a country where 400 million people have no electricity and peak demand exceeds supply, power companies are expected to issue as much as $10 billion of shares this year. Sterlite Industries, National Thermal Power and JSW Energy are among the major power companies planning to tap the equity market in 2008. Sterlite Industries, a leading producer of copper in India, issued $2 billion of American depositary receipts on the New York Stock Exchange in June 2007. The company recently entered the commercial electricity-generating business and is setting up a 2,400 megawatt (MW) independent power plant through its Sterlite Energy subsidiary.

According to Thomson Financial, companies based in India are expected to raise $15.8 billion from a total of 35 IPOs this year, nearly double the $8.3 billion from 91 issues in 2007. Reliance Power’s IPO surpassed the previous record $2.3 billion raised by New Delhi-based real estate developer DLF in June 2007.

Reliance Power, which has several power plants under development, won a bid last July to build a 4,000 MW coal-fired plant in the state of Madhya Pradesh. The plant is expected to require an investment of about $5 billion. The Indian government, which has a goal of electric power for every household in the country by 2012, will build seven new 4,000 MW power plants by then. It plans to spend $200 billion in seven years on generation and distribution facilities.

Reliance Power is a unit of Reliance Energy, India’s second-largest private sector power company after Tata Power. Reliance Energy’s stock quadrupled in value last year and was the top-performing issue on India’s 30-stock benchmark Sensex index. The company’s shares trade on the Bombay Stock Exchange and the National Stock Exchange of India.

ABN AMRO Rothschild, Deutsche Bank, Enam Securities, ICICI Securities, JM Financial Consultants, JPMorgan Chase, Kotak Mahindra Capital and UBS arranged the Reliance Power IPO.

The issue met huge demand from retail investors, who are familiar with the Ambani family name. Reliance Power is headed by billionaire Anil Ambani, son of the late Dhirubhai Ambani, who founded the Reliance Group in 1958. Anil’s billionaire brother Mukesh runs Reliance Industries, which is India’s largest oil and petrochemicals firm.

The Reliance Power IPO was delayed from the fourth quarter of 2007 after investor complaints that Reliance Energy was transferring high-value power projects to the listing vehicle without being properly compensated. The issue went ahead after Reliance Power obtained a Supreme Court ruling against a petition by an investor association, which had persuaded the Gujarat High Court to stall the offering.

Reliance Power plans to hire 5,000 people to build 13 power projects across India. The greenfield power producer’s first project, Rosa Phase I, was the only plant under construction at the time of the listing. The company said that it is pursuing various gas, coal and hydro power-generation facilities strategically located near potential customers but that it cannot guarantee they will begin operations as expected. Several of the planned projects face land disputes. The completion targets also could be affected by contractor performance shortfalls, fuel supply and government approvals, Reliance Power said.


Gordon Platt