Saturday, February 9, 2008

Emaar Withdraws IPO, Blames Choppy Market

MUMBAI: Not long back, initial public offerings (IPOs) used to sell like hot cakes, with investors elbowing each other for the tiny servings that came their way. But not anymore.

Emaar MGF became the second high-profile casualty of the worsening IPO market, with the company announcing on Friday that it was postponing its public issue to an “appropriate time”.

The news comes just a day after Wockhardt Hospitals said it was withdrawing its Rs 600-odd crore public issue in the face of investor apathy. This is the first time that two equity offerings have called off in such a short span. Enam Securities and DSP Merrill Lynch were the global co-ordinators and lead bankers to the Emaar issue.

It is evident that some of the institutional investors who had put in their bids initially developed cold feet just a day before the issue closing.

Emaar’s announcement to pull out followed soon after data provided by the National Stock Exchange showed a sharp drop in subscription by qualified institutional buyers like foreign institutional investors, banks, insurance companies and mutual funds. The announcement puts a big question mark on the future of the IPO market in the near term.

All eyes are now on Monday’s listing of Reliance Power, which could be a make or break for the primary market.
If the stock lists below Rs 600, high net worth individuals and other investors who have borrowed money to bet on Reliance Power will take a hit. For these leveraged investors, the funding cost works out to around Rs 150 a share.

Meanwhile, the government-owned Rural Electrification Corporation (REC) has decided to go ahead with its public issue, which is to open for subscription from February 19. REC chairman Anil Kumar Lakhina told ET that there is “no plan to postpone the issue”.

It is being perceived that even if the market remains choppy, state-owned banks and insurance companies may be prompted to subscribe to the IPO.

Another issue that is feeling the heat is that of SVEC Construction, which opened on February 4. The issue, which was scheduled to close on February 8, will now close on February 13. The price band has been lowered to Rs 80-90 from Rs 85-95 earlier.

Touted as the second largest global issue in 2008, the Emaar IPO was India’s fourth largest public issue after Reliance Power, DLF and Reliance Petroleum. Emaar, which was hoping to raise up to $1.64 billion, had to cut its price band twice and extended the closing date by three days to February 11 after a tepid response.

In a statement issued on Friday Emaar said, “The company decided to take this step as a result of the prevailing adverse market sentiment, fuelled by renewed indications of a US recession and global meltdown. The company expects to return to the market at a later date when sentiment and liquidity conditions are better.”

Emaar said the failure of the IPO would not have any negative impact on its current or future projects. The issue was open for subscription till Monday after the bidding process was extended along with a reduction in the price band. However, the company decided against waiting till the last day.

“Despite good investor interest in such volatile conditions and keeping in mind post listing performance, it was decided to withdraw the deal in interest of existing and new investors. This move will have no impact on the company’s expansion plans,” said Dharmesh Mehta, head of equities at Enam Securities.

Merchant bankers said the decision to call off the issue was taken despite the QIB and HNI portions getting almost full subscription. “What happens after listing was the question. Why push investors in such turbulent times and thereafter list below par . It’s a retail brand. The company will come back at a later date with a strong book and stronger QIB,” said a banker.

According to NSE data, as on February 7, Emaar MGF has seen its QIB category subscribed 0.99 times (it later dropped to 0.29 times) and the HNI category was subscribed 0.98 times. The retail subscription subscribed 0.46 times as of Thursday. By then, the grey market premiums had dropped to around Rs 14-15.

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