With Merrill Lynch and Morgan Stanley as joint-lead managers, HDFC Bank priced a 10.8 million unit issue after Friday's Mumbai close at $13.83, representing a 0.03% premium to a 10-day closing average of Rp217.34. One DR equals three shares and there is also a 15% greenshoe.
Raising proceeds of $149.36 million, the bank was able to secure relatively aggressive pricing on the back of a strong order book that closed between seven and eight times oversubscribed. In particular, HDFC Bank is said to have received orders for over 10% of the transaction from about 20 investors and one super-jumbo order from Asia which underpinned the book and propelled momentum from the outset.
With a total of 160 investors participating, there is said to have been a hit rate with 50 out of 55 one-on-one meetings conducted during the five-day roadshow. The resulting geographical split saw 41% of paper go to Asia, 44% to Europe and 25% to the US. About 50% of investors already held the underlying stock and most put the new deal in their emerging markets or Asian funds, with a couple of accounts placing paper in specialist bank funds.
However, observers report that one of the most interesting additions was the participation of investors that had not played the Indian market before. This is said to have represented about 15% to 20% of orders.
"These investors participated because there was obviously good momentum behind the deal and they saw the issue as an ideal non-tech proxy to the Indian economy," one banker reports.
Like most Indian ADR's before it, HDFC was only able to get a premium by using a moving average. Despite the fact that most Indian ADR's trade at premiums to the underlying in the secondary market, investors have never accepted a pricing premium in the primary.The latest issue consequently came at a 3.4% discount to Friday's close and follows the example of ICICI Bank last year, which priced at an 8.2% discount to spot, but over a five-day average was able to get a 5.5% premium.
"The fact is that HDFC has outperformed the market since roadshows got underway," an observer comments. Over the past 10 days, the stock has been up every single day and has risen 4% since the start of presentations on Friday 13th. Over the same period, the Indian market has fallen 2.5%."
Local experts also add that while the Indian economy may be slowing, HDFC Bank continues to maintain a strong growth trajectory, with its consumer banking side growing at about 30% per annum.
For Merrill Lynch and Morgan Stanley, the deal adds to the two bank's tally of successful Indian deals. Merrill Lynch has also had a particularly good year, leading all three of the country's ADR issues. Its $133 million ADR for Dr Reddy's Laboratories back in early April is also said to have been the world's best performing equity offering year to date, rising just over 100% from its $10.04 issue price.
