Rel Power IPO drops on debut | Sensex sheds 800 pts

CYNOSURE OF ALL EYES: Anil Ambani was the centre of attention on Monday for markets worldwide.

        

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Mumbai: Shares in Reliance Power fell as much as 14 per cent in a chaotic debut on Monday as global market turmoil dented investor demand following its $3 billion initial public offering, the country's largest.

The poor start for a share that had initially been expected to double was a further setback for India's record pipeline of IPOs this year.

Two offerings, including a big one from Emaar MGF Land, were shelved last week after a tepid response triggered by the global credit crunch and US recession worries.

"It will definitely hit investor sentiment in other IPOs as new entrants in the market will think several times before pricing their offer aggressively," said DD Sharma, vice-president at Anand Rathi Securities. Utility Reliance Power, part of the Anil Dhirubhai Ambani Group, sold out within a minute last month when it opened its record IPO.

The offer was priced at Rs 450 a share, the top of range, making it the world's biggest offering so far in 2008, according to Thomson Financial. Reliance Power plans to build power plants across India using funds raised by selling around a tenth of the company.

Analysts first expected Reliance to touch Rs 900 when it began trading, but stock market turmoil lowered investor risk appetite and analysts subsequently said a start of Rs 75-150 above the IPO price was more realistic. In the event, it opened flat, rose briefly to Rs 599.90, and quickly dropped to a low of Rs 389, according to data from the Bombay Stock Exchange and the National Stock Exchange.

By 1200 hours, the stock was down 9.3 per cent at 408 rupees, with the benchmark index 4.1 per cent lower. Shares in Reliance Energy, which holds 45 per cent of Reliance Power, were down nearly 11 per cent at Rs 1,750.

Chairman Anil Ambani rang the bell at the Bombay Stock Exchange for the start of trade on Monday, saying: "I'm confident our long-term investors will reap rich rewards by investing in the company."

AGGRESSIVE PRICING

The issue, managed by Kotak Mahindra Capital Co, UBS, ABN AMRO, Deutsche Equities, Enam Securities, ICICI Securities, JM Financial and JPMorgan, had been helped by the Ambani family name. There are no forecasts for the company as it does not have any operational assets, but plans to set up about 28,000 megawatts of power projects.

The utility saw its IPO subscribed 73 times, even though analysts said it was unlikely to report strong profits for five years. The Rs 450 offer price valued it at Rs 11,500 crore. But since the offer closed, market conditions have deteriorated and the benchmark index has lost about 18 per cent from an all-time high of 21,206.77 hit on January 10.

Analysts said Reliance Power had been overpriced relative to India's top power producer NTPC Ltd, which now trades at more than 21 times forward earnings.

"In this kind of a market, you are better off investing in companies based on their earnings potential than in those whose valuations depend on their future stock movements," said Nilesh Jasani, head of research at Credit Suisse.

Warning signs came last week when Wockhardt Hospitals Ltd and then Emaar MGF, the Indian joint venture of Dubai's Emaar Properties, pulled their IPOs due to poor response and worries the shares would fall on their debuts.

Until then, India had a record IPO pipeline for 2008, according to Thomson Financial. Government-run State Bank of India plans big rights issue soon. But Reliance Power's reception may make companies think twice.

Reliance Communications, another Anil Ambani firm, is planning an IPO for its telecom towers unit, Reliance Infratel Ltd.

"If the equity financing route is closed for a few quarters it will have an impact on both the markets and the economic fundamentals," Jasani at Credit Suisse said.

Founded by Dhirubhai Ambani, the Reliance group of companies were divided between the late Ambani's sons in 2005: Anil, who has interests in telecoms, financials, media and power; and elder brother Mukesh, who controls India's top listed firm, oil and petrochemicals giant Reliance Industries Ltd.