Indian infrastructure building company Jaiprakash Associates completed an accelerated qualified institutional placement (QIP) of shares Thursday, drawing solid demand as investors continued to flock to India amid a post-election euphoria.
Jaiprakash Gaur’s company raised Rs15 billion ($250 million) in the QIP after pricing shares at the bottom of its Rs70.72 to Rs74 price range, under the leads of CLSA and Standard Chartered. The final price achieved represents a 5% discount to the shares' July 2 close of Rs75.50, according to a term sheet seen by FinanceAsia.
Proceeds will be used to pay back debt accrued by Jaiprakash Associates, which as of last September stood at $5 billion, according to a banker close to the deal. Parent company Jaiprakash Group, separately, has debt totalling $9 billion.
Jaiprakash Associates, the builder of India's only Formula One racing track, also plans to sell a cement plant this September for Rs38 billion as part of its efforts to pay down some of its debt, the banker said.
“It’s a highly leveraged company and is in the process of deleveraging,” the banker close to the deal told FinanceAsia. "They announced asset sales to reduce their debt and this QIP will help them reduce debt further."
About 30 long-only institutional investors, hedge funds and domestic mutual funds purchased shares via the QIP, a banker close to the deal said, noting that the deal was top-heavy, with the top-five investors buying up over half of the deal.
Shares in Jaiprakash Associates are up 38% so far this year and the company is trading at 65.57 times its estimated 2015 earnings, according to Bloomberg.
Post-election euphoria
The deal underscores how investor confidence is returning to the country and wasn't the day's only Indian QIP.
GMR Infrastructure raised $250 million after pricing its shares at Rs31.50 each under the leads of Bank of America Merrill Lynch, Deutsche Bank and JPMorgan.
And both the Jaiprakash and GMR deals come just one week after Anil Ambani’s Reliance Communications raised Rs61 billion ($1.017 billion) through a QIP and warrants issues. The deal, lead managed by CLSA and JPMorgan, was the largest-ever equity deal by a private sector Indian corporate in rupee terms.
Timing was key in all three deals. Narendra Modi's victory in India's general election has lifted the country's entire stock market. Since it became clear that business-friendly Modi would win the election in early May, the S&P Sensex Index of leading Indian shares has spiked 14%. Year-to-date it is up 21%.
“Modi has definitely changed sentiment in India. We’re seeing a bit of a theme,” the banker said, noting similarities between the Jaiprakash and GMR deals — both companies launched the QIPs in an effort to deleverage their balance sheets and both deals wound up pricing at similar discounts.
The equity deals partially lifts the weight of debt overhanging the shares of all three companies. In the case of Reliance, the company tried to spin off its subsea cable unit via a $1 billion business trust in Singapore. Despite offering a double-digit yield, the deal failed to get off the ground.
But the return of confidence plus the successful completion of these equity deals has removed these issues.
