Cox and Kings sells $65 million of GDRs

Cox and Kings, an Indian travel agency business with roots dating back more than 250 years, yesterday raised $65 million from the sale of its first ever global depositary receipts (GDRs). The deal followed a non-deal roadshow and was well received by large global long-only investors who already have Indian funds or who are looking for exposure to the South Asian country.

Like many other Indian follow-on deals that have to adhere to restrictive floor prices, the offering was launched at a fixed price of $12.17 per GDR, which translated into Rs569.17 per common share listed on the National Stock Exchange of India. The offer price was equal to the floor price and represented a tight 1.9% discount to Monday’s closing price of Rs580.40. One Luxembourg-listed GDR is equal to one common share and joint bookrunners India Infoline and Morgan Stanley used an exchange rate of 46.78 rupees to the dollar.

While Cox and Kings was listed only in December last year, the stock is quite liquid and the share price has had a strong run as investors see the travel business as a way to play the country’s strong economic growth. By Monday’s close, the share price had risen 75% since its debut on December 11, resulting in a market capitalisation of about $780 million.

This also means that the deal accounted for only 8.3% of the outstanding share capital, making it fairly easy for the market to absorb. However, hedge funds were said to have shown little interest given that the shares were sold in the form of GDRs. While the majority of Indian GDRs are typically converted back into the more liquid common shares, it does take 15-20 days to do so, on top of the T+5 settlement period – making it a somewhat risky proposition for a hedge fund should the market move against it in the meantime.

Cox and Kings would have been prevented from selling new shares through a qualified institutional placement (QIP) since those are only open to companies that have been listed for at least one year.

The offer was launched after the Indian market closed on Monday and completed before the opening yesterday to give local investors a proper chance to participate. The company said it would use the money for acquisitions of complementary businesses.

While relatively small in absolute dollar terms, the deal may have attracted some additional interest since it came on the heels of a spectacular US trading debut by a second Indian travel specialist last week. The company, called MakeMyTrip Limited, listed on Nasdaq on Thursday following a $70 million initial public offering and surged 89% to a first day close of $26.45. The gains came after the company had already priced the IPO at the top of the $12 to $14 offering range.

Again, investors were likely betting that the economic growth will lead to increased travel by Indians and after two days of slight declines the stock rallied another 29.5% last night to finish at $31.95 – up 128% from the IPO price.

MakeMyTrip is India’s largest online travel company, which appears to have caught the attention of US investors. But their interest may also have been boosted by the fact that MakeMyTrip, according to Bloomberg, was the first US IPO by an Indian company since July 2006 when WNS Holdings raised $225 million. It is also only the fourth India-based company to go public in the US since 1999.

In contrast, Cox and Kings fell 3.7% yesterday following the GDR sale to a close of Rs559 – 1.8% below the GDR price. Compared with MakeMyTrip, Cox and Kings is more of an old style travel agent with retail shops staffed by travel experts. On the other hand, it does have subsidiaries in the UK, Australia, New Zealand, Japan, the US, the UAE and Singapore and operates from Moscow, the Maldives and Tahiti through branch offices and from Spain, Sweden, Germany, Italy, France, South America and South Africa through representative offices. This means it is benefitting not only from the increase in travelling by Indians, but from the rising number of international travellers going to India.