Record India's share sales may falter as NTPC shunned
Tuesday, 9 February 2010
MUMBAI, Feb 8 (Bloomberg): India's drive to sell a record 250 billion rupees ($5.4 billion) of shares in state-owned companies to plug a deficit in government revenue may fall short after foreign investors shunned the year's biggest offering amid a stock market slump.
Investors overseas accounted for only 4.1 per cent of the bids by funds for NTPC Ltd, India's biggest utility, in a sale that closed Feb 5. Bids by state-run banks and insurers ensured orders of 1.2 times the total stock, lagging behind the two to five times subscription for private sales in the past two weeks.
"I saw some disappointment in the response to the offering," Corporate Affairs Minister Salman Khurshid told reporters in Mumbai on Feb 5. "There are several views about pricing these issues more aggressively: this is something that is being kept in mind."
India's stock index slumped 2.7 per cent last week, marking its longest losing streak in a year, as investors overseas turned net sellers after record purchases in 2009. A slump in appetite for stocks may reduce proceeds from stake sales in the biggest iron-ore producer and the largest lender to rural power projects. The government needs to complete those sales by the end of March to trim a budget deficit approaching a 16-year high.
The government will "have to be pragmatic on pricing," said Sam Mahtani, who manages $2.2 billion in emerging market funds at F&C Management Ltd. in London. Overseas investors "have become risk-averse after the declines seen in India and other emerging markets."
Investor concern that Greece and other European nations may struggle to finance their deficits has dampened demand for riskier assets: emerging market equity funds lost $1.6 billion in the week ended Feb 3, the biggest outflow in 24 weeks, while stock market indexes from India to Brazil are down more than 10 per cent from January peaks.
India's stake sales come "at a poor time" as overseas investors are shunning riskier assets and those perceived as vulnerable to political influence, Vikas Pershad, a hedge fund manager at CMT Master Fund Ltd, said in an e-mail from Chicago. "Foreign investors, myself included, remain very weary of government-controlled entities, especially in highly regulated industries."
NTPC was expected to weather that. Kalpana Morparia, head of JP Morgan India Pvt and a banker on the deal, predicted a week before the sale opened that it would raise $2 billion.
"Getting to invest in NTPC is a once in a lifetime opportunity," Morparia had said on Jan 27 after NTPC Chairman R.S. Sharma returned from a trip to New York to woo investors. "In ordinary times, this company would never sell. It's got a phenomenal amount of cash behind it and wouldn't need to raise money. The sale by the government is a golden opportunity for investors."
With a floor price fixed at 201 rupees a share -- a 1.6-per cent discount to NTPC's closing price on Feb 5 -- investors weren't enthusiastic. NTPC's Sharma said after the sale closed that it probably raised about 85 billion rupees ($1.8 billion).
Morparia wasn't immediately available to comment today. Kavita Sonawala, spokeswoman for JP Morgan India, did not comment when contacted by phone and e-mail.
Other banks managing the sale were Citigroup Global Markets India Pvt, Kotak Mahindra Capital Co and ICICI Securities Ltd.
The government might need to sell larger stakes to raise the amount of funds it's targeting, said Seth Freeman, chief executive officer of EM Capital Management LLC in San Francisco, which runs the EM Capital India Gateway Fund. "They sold five per cent this time -- that's not very much, and it raises liquidity concerns for foreign investors. It'd be more exciting to see 20 percent being floated," he said.
The government plans to sell a five-per cent stake in Rural Electrification Corp, a state-owned lender for power projects, starting Feb 19, and to offer an 8.4 per cent stake in NMDC Ltd, India's largest iron ore miner, in the second week of March, Sumit Bose, disinvestment secretary, said in an interview on Feb 5. Roadshows are scheduled for both companies over the next two weeks.
Investors overseas accounted for only 4.1 per cent of the bids by funds for NTPC Ltd, India's biggest utility, in a sale that closed Feb 5. Bids by state-run banks and insurers ensured orders of 1.2 times the total stock, lagging behind the two to five times subscription for private sales in the past two weeks.
"I saw some disappointment in the response to the offering," Corporate Affairs Minister Salman Khurshid told reporters in Mumbai on Feb 5. "There are several views about pricing these issues more aggressively: this is something that is being kept in mind."
India's stock index slumped 2.7 per cent last week, marking its longest losing streak in a year, as investors overseas turned net sellers after record purchases in 2009. A slump in appetite for stocks may reduce proceeds from stake sales in the biggest iron-ore producer and the largest lender to rural power projects. The government needs to complete those sales by the end of March to trim a budget deficit approaching a 16-year high.
The government will "have to be pragmatic on pricing," said Sam Mahtani, who manages $2.2 billion in emerging market funds at F&C Management Ltd. in London. Overseas investors "have become risk-averse after the declines seen in India and other emerging markets."
Investor concern that Greece and other European nations may struggle to finance their deficits has dampened demand for riskier assets: emerging market equity funds lost $1.6 billion in the week ended Feb 3, the biggest outflow in 24 weeks, while stock market indexes from India to Brazil are down more than 10 per cent from January peaks.
India's stake sales come "at a poor time" as overseas investors are shunning riskier assets and those perceived as vulnerable to political influence, Vikas Pershad, a hedge fund manager at CMT Master Fund Ltd, said in an e-mail from Chicago. "Foreign investors, myself included, remain very weary of government-controlled entities, especially in highly regulated industries."
NTPC was expected to weather that. Kalpana Morparia, head of JP Morgan India Pvt and a banker on the deal, predicted a week before the sale opened that it would raise $2 billion.
"Getting to invest in NTPC is a once in a lifetime opportunity," Morparia had said on Jan 27 after NTPC Chairman R.S. Sharma returned from a trip to New York to woo investors. "In ordinary times, this company would never sell. It's got a phenomenal amount of cash behind it and wouldn't need to raise money. The sale by the government is a golden opportunity for investors."
With a floor price fixed at 201 rupees a share -- a 1.6-per cent discount to NTPC's closing price on Feb 5 -- investors weren't enthusiastic. NTPC's Sharma said after the sale closed that it probably raised about 85 billion rupees ($1.8 billion).
Morparia wasn't immediately available to comment today. Kavita Sonawala, spokeswoman for JP Morgan India, did not comment when contacted by phone and e-mail.
Other banks managing the sale were Citigroup Global Markets India Pvt, Kotak Mahindra Capital Co and ICICI Securities Ltd.
The government might need to sell larger stakes to raise the amount of funds it's targeting, said Seth Freeman, chief executive officer of EM Capital Management LLC in San Francisco, which runs the EM Capital India Gateway Fund. "They sold five per cent this time -- that's not very much, and it raises liquidity concerns for foreign investors. It'd be more exciting to see 20 percent being floated," he said.
The government plans to sell a five-per cent stake in Rural Electrification Corp, a state-owned lender for power projects, starting Feb 19, and to offer an 8.4 per cent stake in NMDC Ltd, India's largest iron ore miner, in the second week of March, Sumit Bose, disinvestment secretary, said in an interview on Feb 5. Roadshows are scheduled for both companies over the next two weeks.