Oil India IPO prices at top to raise $574 million

Oil India yesterday priced its initial public offering at the top of the indicative range, raising Rs27.8 billion ($574 million) ahead of a listing by October 1. The deal was massively oversubscribed, making the state-owned producer of oil and gas the most popular Indian IPO so far this year.

The 26.45 million shares on offer priced at Rs1,050 a share, the top of a price range that started at Rs950. The shares account for 11% of the enlarged share capital. In addition to the IPO, the company is selling a further 10% at the IPO price to three state-run refiners. Following the two transactions, the government's stake will decrease from 98.1% to 78.4%.

Institutional investors in particular flocked to the deal. The 14.4 million shares targeted at qualified institutional buyers (QIB) were 53.8 times subscribed. One source close to the deal said that demand originated from the entire spectrum of investors, such as international long-only and hedge funds, as well as domestic mutual funds. In terms of geographical spread, the international investors were said to be skewed towards Asia.

Non-institutional investors, such as corporates and high-net-worth individuals, put in orders for 10 times the shares allocated for them. And the retail tranche was 1.7 times covered.

Overall, the deal was just under 31 times covered. Relative to its size, this makes it more popular than the two Indian power companies that have recently listed. Last month, state-owned hydroelectric power company NHPC raised $1.25 billion in an IPO that was 23.6 times covered. And earlier in August, another power company, Adani Power, raised $625 million in an IPO that was 21.6 times covered. However, in terms of actual order amounts, NHPC attracted significantly more money than each of the other two.

Adani Power and NHPC have had slightly different fortunes since they listed. Adani Power priced its IPO at Rs100 a share. Yesterday it closed just above water, at Rs101.8. NHPC's shares, however, have traded lower since its debut on September 3. As of yesterday's close, the stock was at Rs33.85, a 7.7% decline from the IPO price of Rs36.

Oil India's IPO price values it at 10.4 times earnings for the 2009 financial year (which finished in March), based on an earnings per share of Rs101. The natural comparative for Oil India is Oil and Natural Gas Corporation (ONGC), a much larger state-owned company in the same sector. ONGC historically trades at a price-to-earnings ratio of between 10 and 11 times.

Citi, HSBC and JM Financial/Morgan Stanley were the joint bookrunners for the IPO. The next Indian IPO on the slate is Pipaviv Shipyard, which will launch this week with an eye to raising $106 million.