India's MOIL achieves maximum IPO target

It may not have attracted the same number of headlines in the international press as Coal India’s record-breaking initial public offering in October, but MOIL Limited clearly sparked the interest of investors.

Despite a deal size below $300 million, India’s largest producer of manganese ore drew more than $15 billion of demand, which allowed it to fix the price at the top end of the offering range to raise the maximum Rs12.4 billion ($275 million) it sought. The tranches targeted at institutional investors, high-net worth individuals and retail investors were all heavily oversubscribed.

A source said the state-owned company, which was previously known as Manganese Ore (India), benefitted from being one of the few pure-play manganese producers in the world and from being viewed as a proxy for the Indian steel industry, which is projected to continue to grow at a rate of more than 9% per year in the next five years.

Manganese ore is primarily used to make ferro-alloys that are used for steel production and, being the market leader with about 50% of the production of this metal in India, MOIL is clearly in a good position to benefit from the expected increase in steel demand. According to the Indian ministry of steel, India is expected to become the second latest producer of crude steel in the world by 2015-2016, up from fifth last year.

The IPO accounted for 20% of the company and all the shares on offer were secondary. A 10% stake was sold by the Indian government, which held 81.6% before the IPO, while the state governments of Madhy Pradesh and Maharashtra each sold 5%, reducing their respective stakes to 3.8% and 4.6%.

The deal comprised a total of 33.6 billion shares, which were offered at a price between Rs340 and Rs375, with a 5% discount for retail investors. Excluding 672,000 shares reserved for employees, 50% of the deal was targeted at qualified institutional bidders (QIB), 30% to retail investors and 15% to non-institutional investors, which essentially means high-net-worth individuals and companies.

QIB’s ordered 49.2 times the shares available to them, with 38% of that demand coming from foreign investors. The retail tranche was 32.9 times subscribed, while the smaller non-institutional portion was 143.3 times covered when the books closed last Thursday. Similar to other government IPOs and sell-downs this year, the employee portion was undersubscribed, attracting demand for less than 60% of the shares earmarked for this purpose.

According to data on the National Stock Exchange website, virtually all bids came in at the top of the range, but despite that, the government took several days to sign off on a price at the top of the range – at Rs375 per share. While the lack of price sensitivity clearly supported the top-end pricing, the long delay in announcing the final price may suggest that the government was at least pondering leaving something on the table for investors in light of rising uncertainty about the short-term outlook for global equity markets and a poor trading debut by several other market newcomers in Asia recently.
However, sources point out that it is difficult for the government not to go for the maximum possible price, since that could spark criticism that it is selling the state’s assets too cheap.

MOIL is expected to start trading on December 15. The IPO was arranged by Edelweiss Capital, IDBI Capital Market Services and J.P. Morgan.