Tata Power and Suzlon boost GDR sizes

India's Suzlon Energy was able to slightly increase the size of its global depositary receipt offering that was launched late Monday after keeping the books open for another few hours yesterday. The wind turbine manufacturer sold $108 million worth of GDRs, up from an original deal size of $100 million, according to a company statement.

And last night, Tata Power, India's largest private sector power utility, attracted sufficient demand to upsize its GDR by 34% to $335 million from $250 million. According to the term sheet the company had the option to sell up to $400 million worth of GDRs, but a source noted that in light of the fact that equity markets were a bit softer yesterday, it was not bad to be able to add one-third to the deal.

That both companies were able to raise at least a bit more money than initially planned shows that investors remain interested in the Indian power sector, which needs significant investments over the next few years to plug expected power shortages. The Indian government has identified the sector as a key focus for promoting sustainable industrial growth and has launched extensive reforms to make the sector more attractive for private sector investment.

The investor demand is good news for two other Indian power generators -- Adani Power and Indiabulls Power -- that are about to launch initial public offerings to boost their expansion capital. Last week, India's largest non-ferrous metals and mining company, Sterlite Industries, also raised $1.5 billion from a follow-on sale of US-listed American Depositary Shares to pay for the development of a commercial power business.

The Tata Power transaction was launched around 9pm last night Hong Kong time and closed sometime after midnight, by which time it had accumulated an order book that one source referred to as "good quality with good global demand". About 30 investors participated in the offering.

Like most other Indian follow-on offerings at the moment, the Tata Power deal was launched at a fixed price. A key reason for that is that companies have very little flexibility with regard to the size of the discount as the floor prices that they are bound by are oftentimes only just below the market price. To add a maximum price to create a range is therefore largely pointless as investors are likely to go for as wide a discount as possible.

Tata Power offered its GDRs at a price equivalent to Rs1,089.80 per share, which was just Rs0.02 above the floor price of Rs1,089.78 and represented a discount of 3.2% versus yesterday's closing price of Rs1,126.15 on India's National Stock Exchange. The share price fell 2.5% in yesterday's trading.

Each GDR accounts for one common share and based on the prevailing exchange rate, the GDRs would have sold for about $22.58 apiece. Goldman Sachs and J.P. Morgan were joint bookrunners for the offering.

Tata Power didn't specify what it will use the capital for, telling investors only that it was for general corporate purposes. The GDR sale came only a day after Tata Steel, another member of the influential Tata Group, raised $500 million from a GDR sale of its own. That offering too was upsized from an original $400 million and sold at a fixed price corresponding to Rs370.20 per common share, or at a 5.4% discount to Monday's close. Tata Steel's offering was arranged by Citi, Goldman Sachs, J.P. Morgan and UBS. The Tata Group is also involved in the manufacturing of cars and commercial vehicles -- last year it bought the Jaguar and Land Rover businesses from Ford Motor in a deal that left it with a lot of costly debt -- as well as in hotel operations, telecommunications and chemicals.

Meanwhile, Suzlon completed its smaller GDR before the Indian market opened yesterday, after giving Asian investors who might have missed the offering the night before due to the late launch, another chance to participate. A source said the overall demand was driven largely by existing shareholders who took the opportunity to either increase their exposure or prevent their existing stake from being diluted.

The deal was offered and sold at a fixed price $7.40 per GDR, which corresponded to Rs89.55 per common share. The price was equal to the floor price and resulted in a discount of 4.9% versus Monday's closing price of Rs94.20. Each GDR is equal to four India-listed common shares.

Contrary to Tata Power, Suzlon gave a long list of potential uses for the proceeds, including capital expenditure, the capitalisation of and loans to one or more subsidiaries, and repayment of foreign and domestic debt, but the source said the main purpose would be to deleverage the balance sheet -- a key theme among Indian companies raising equity this year. The offering was arranged by Citi, Credit Suisse and Deutsche Bank.

Separately, Suzlon also sold $90 million of five-year convertible bonds. That issue was primarily targeted at the holders of the $121.4 million that remains outstanding of its zero-coupon CB due in October 2012, who have recently given their approval to a consent solicitation to amend the financial covenants on the CB and waive any previous events of default. As part of the consent solicitation, the CB holders got the option to request the company to issue a new CB. Following such a request on Friday last week, the company launched a $70 million zero-coupon CB offer shortly before midnight on Monday (Hong Kong time) at an issue price between 104% and 105% of face value. The deal was priced yesterday at 104.30%, which analysts said was essentially equal to the value of the underlying shares, and was upsized to $90 million as some investors who did not hold the 2012 bonds also came into the transaction. Still the deal was essentially a private-style offering in terms of the execution.

The bonds offer a yield to maturity of 5.967% and can be converted into shares at any time from September 2 at a conversion price of Rs90.38 - a price which is actually at a 4% discount to Monday's closing price. The CB issue was arranged by Deutsche Bank and Macquarie.