Four general observations can be drawn from the deal's opening day performance:
First, that the decision of the sponsors, Reliance Industries (RIL) to price the shares at the mid-point of the indicated price range (Rs57-62) - despite a massive 51 times subscription at the top end of the range - contributed greatly to the deal's success;
Second, that the Reliance name continues to conjure the same magic among IndiaÆs investors that it has for the last 30 years; indeed over the last year RIL has been one of the biggest wealth creators among Indian shares recording a high growth in market capitalisation;
Third, that the Indian bull run remains unaffected by the voices of doom across the region suggesting that a correction in IndiaÆs soaring Sensex (which crossed 12,500 recently) is overdue;
And fourth, that the Asia-wide trend of IPOs surging to incredible premiums to their offer price seems set to continue. Earlier this month Chinese port operator Dalian Port Company closed up 68% from the IPO price on the first trading day and Shanghai Prime machinery closed 43% up from its IPO price. In April Hunan Non Ferrous Metals set a record in Hong Kong with a trading debut 73% up from its IPO price.
What is also noteworthy is that Reliance Petroleum is setting up a greenfield project which will not generate positive cashflow until 2009.
J. Niranjan, the head of investment banking at ICICI Securities (one of the nine lead managers of the issue) attributes the startling performance to ôthe very sound decision by Reliance Industries to price in the middle of the range, the established practice in the Reliance group of leaving something on the table for investors, the Reliance brand equity and the concurrent investment by Chevron in Reliance Petroleum at the same price as the issue price.ö
While ringing the bell at the Bombay Stock Exchange Mukesh Ambani commented: ôThis is a historic moment for us - as it is RelianceÆs first listing in 14 years.ö
The retail investor tranche was subscribed 13.8 times and those who bid for 1,400 or more shares were all allotted shares on a proportionate basis. The highest subscription was in the Qualified Institutional Buyer (ôQIBö) category, which was 68.20 times subscribed. In all 411 allottees received an allocation in the QIB category.
Reliance Petroleum has set the stage for other pending equity fundraisings from India. A $1.5 billion IPO by Delhi based construction firm, DLF (whose promoter Kushal Pal Singh was the highest new entrant on the Forbes 2005 list of IndiaÆs 40 richest people debuting at number 5) is slated for June. This is expected to be the largest deal from India in 2006.
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