The size of the offering has been reduced from earlier plans to raise about $2 billion in the IPO after Cairn India sold $822.5 million worth of shares through a pre-IPO placement last week. The combined fund raising exercise will still mirror the initial plans, however.
In a statement issued yesterday, the parent company said the IPO will comprise 328.8 million shares that will be offered to investors at Rs160 to Rs190 apiece for a total deal size of Rs52.6 billion to Rs62.5 billion ($1.18 billion to $1.4 billion). There will be a yet to be determined greenshoe that could boost total proceeds further.
At least 60% of the deal will be offered to qualified institutional bidders, while 30% will be earmarked for Indian retail investors. The remaining 10% will be offered to non-institutional investors.
The offer price range straddles the pre-IPO placement price of Rs176.48, which was set with the caveat that it will be reduced if the IPO price ends up being lower.
Based on the fact that 18.6% of the company will be offered through the IPO, the price range implies a market capitalisation of Rs282.45 billion to Rs335.41 billion ($6.32 billion to $7.5 billion) at the time of listing. Cairn Energy will hold 69.5% of the company after the IPO (pre-greenshoe).
ôThe price range for the floatation reflects not only the current Cairn share price, but also our belief in the long term potential value of the Indian business which we have now seen positively supported by our private placing,ö Cairn EnergyÆs CEO, Bill Gammell, said in the statement.
Cairn Energy currently trades at a discount of about 10%-18% versus its net asset value per share of ú22-ú24, based on consensus estimates. And given that the Indian operations account for 95% of the companyÆs assets, the valuation for Cairn India is likely to be similar, market sources say.
The group is in the process of transforming itself from primarily an oil and gas exploration company into an fully fledged exploration and production company led by the Indian unit. But given that it is not expected to be producing oil in bulk from its main field in Rajasthan until early 2009, investors are likely to continue to value the spun off entity on a discount to net asset value basis, the sources argue.
Cairn India, which has been operating as an exploration company in India for 12 years, has gross proven and probably crude oil and natural gas reserves of about 754 million barrels of oil equivalent (boe). The net working interest is estimated to be 472 million boe. Most of the reserves are contained within its Rajasthan block, which is its primary asset and is expected to be the key driver of the companyÆs growth in the medium term.
The companyÆs discovery of the Mangala field in Rajasthan in 2004 marked the largest onshore crude oil discovery in India since 1985. Commercial production at this field is currently scheduled to begin in 2009. According to the preliminary listing document, Cairn India will operate approximately 20% of IndiaÆs oil production by 2010, assuming Indian production remains at current levels and the production from the Rajasthan BlockÆs Northern Fields fulfils its target gross plateau production rate of approximately 150,000 bbl/day.
The IPO is being arranged by ABN AMRO Rothschild, DSP Merrill Lynch and JM Morgan Stanley.
Last week, the company sold 209.67 million shares, or 11.9% of its total issued share capital, to six investors through a private placement arranged by ABN AMRO Rothschild and Merrill Lynch. The sale totalled $822.5 million with the bulk of the shares, or 84%, being bought by Petroliam Nasional Berhad (Petronas). The Malaysian oil company will hold about 10% of the company after the completion of the IPO.
The institutional book building for the IPO will run until December 15, when the price is also due to be fixed.
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