Posts Tagged ‘initial public offering’

CIL sets IPO record; to list on Nov 4

India’s IPO market created history on Thursday with state-owned Coal India share issuer in the becoming the biggest country, beating Reliance Power’s 2008 initial public offering.

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At the time of going to press, the CIL issue was subscribed 15.26 times, collecting Rs 2,36,113.28 crore. The shares will debut on the market on November 4, a day before Muhurat trading that marks Diwali.

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Responding to late rush from retail investors, the company postponed the close of the issue to 9 pm.

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At the upper end of the band, CIL will be the seventh biggest Indian company by market cap, after ONGC, State Bank of India, TCS, Reliance Industries, Infosys Technologies and NTPC, based on Thursday’s closing price. CIL’s Rs 15,474 crore IPO has overtaken Reliance Power’s Rs 11,700 crore issue.

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Buoyant demand from retail and wealthy investors on the final day added to the strong response from institutional buyers. This also signalled success for the government’s upcoming share sales.

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Retail investors, who often take cues from institutions in IPOs, had put in bids for shares 1.44 times or for 28,60,44,375 shares. Retail investors will get a five per cent discount on the final issue price.

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Wealthy individuals had separately bid for 13.89 times the shares available for them.

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Bidding for the mega IPO closed on Wednesday for qualified institutional buyers, including foreign institutional investors, mutual funds and insurance firms. And for the portion reserved for them, the issue was over subscribed by 24.70 times, lead by FIIs.

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The IPO has generated a demand of 493,38,72,050 shares from FIIs. Calculated at the upper end of the price band, this demand is worth Rs 1,20,879.86 crore and at the lower end worth Rs 1,11,012.12 crore. Even at the low end, the demand surpasses the record Rs 1.08 lakh crore pumped in by FIIs into the capital
market.

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India’s largest new issue came amid a flurry of big deals in Asia.

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At the top of its price range, Coal India would be valued at 15.7 times trailing earnings. The issue also got the highest demand for an Indian issue, helped by qualified institutional buyers.

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The demand from QIBs for CIL was at Rs 1,73,398 crore with 100 per cent application amount, compared with Rs 1,88,923 crore with 10 per cent margin for Reliance Power IPO. In case of Reliance Power, the QIB portion was covered 30.68 times.

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“The response to Coal India IPO, from all classes of investors, has surpassed even the most optimistic predictions. It has caught even the biggest optimists by surprise,” SMC Global Securities strategist Jagannadham Thunuguntla said in a note.

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He said the response puts the government on target to achieve its divestment target of Rs 40,000 crore in fiscal 2011 and even exceed it if other issues like the follow-on offering of Power Grid, Steel Authority of India, ONGC, Shipping Corporation of India, Indian Oil Corporation and IPO of Manganese Ore fall in place.

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The government, which has collected Rs 17,500 crore from public issues, including Coal India, may raise its divestment target and get over Rs 58,500 crore, SMC Capital added.

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At the upper end of price range, Coal India issue is worth Rs 15,474 crore and at the lower end it would fetch about Rs 14,211.81 crore.

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The upper band would also give it a market capitalisation of Rs 1.54 lakh crore ($34.7 billion).

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Meanwhile, the broader market recovered from a two-day slump and closed up 1.95 per cent at 20,260.58 points. Now all eyes will be on whether it will be a strong listing on the eve of Diwali.

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RED HERRING PROSPECTUS: A CAREFUL EXERCISE

Initial Public Offering (IPO) is an exercise done by a company for raising capital by going public. IPO is raised generally in two ways either through fixed price or through Book Building. Generally, most of the companies follow the book building process. For this purpose, the company assigns the Merchant Banker as a Book Running Lead Manager (BRLM) for the IPO to handle the responsibility of Book Building Process.

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Book Building is a mechanism through which a consensus price of IPO can be determined on the basis of bids received from the informed investors such as Qualified Institutional Buyers (QIBs), Non-Institutional Buyers (NIBs) and Retail Investors. The process helps in making a correct evaluation of a company’s potential and the price of its shares. In most of the IPOs generally the allocation of the total issue into these 3 categories comprises of 50%, 15%, 35% of the total issue respectively.

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However when the dilution of the promoters stake is less than 25% the minimum allocating proportion for these categories changes to 60%, 10%, 30% of the total issue,respectively. The company aspiring to be public, files Red Herring Prospectus (RHP),framed by merchant banker, to the regulatory body SEBI that is supposed to cover all the important information about the company, its promoters and its businesses with due diligence.

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RHP is supposed to be the most important document for the company as it acts as a medium of imparting all the critical information regarding the issuer company to the public.Generally prospectus spreads over 300-400 pages. However, investors can concentrate on few key chapters to have the overall understanding of the public issue. Industry Overview, Company Overview, Capital Structure, Objects of the issue, Financial Information and Management discussion and Analysis are some of the chapters that one should necessarily focus on.

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Let’s understand the relevance of each of these topics one by one:

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Industry Overview: This chapter covers the prevailing market scenario of the industry in which the company operates. We get to know that how much the particular industry contributes to the growth of the country’s economy. That is the behavior of the industry with respect to the growth momentum of the country’s economy. Moreover it entails the government plans and initiatives, budgetary allocation in accordance with five year plans for the industry. This gives the picture of potential opportunity in the industry and its key drivers. It also includes the various linkages regarding the relation of industry to the domestic and global economy.

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Business Overview: This compasses all the information related to the business domain of the company – how the business commenced its operations, grown over the period. The product details of the company and where does it lies in the value chain of the industry. The product scope,how the distribution channel works, the marketing strategy, raw material procurement, details about the vendors, clients and their relation withthe company, the revenue generation process, target market, location of operation. All these information helps in knowing the strengths and weaknesses of the company. It also gives information regarding the future aspects of the company.

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How the company is expecting to expand its business, strategies to increase the market share of the company.

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Capital Structure: It tells us about the shareholding pattern of the company. The constituents of the present equity capital of the company, since inception to the present pattern of the shareholding. The details of the how it has raised its capital under the due period. It gives us the details aboutwho are the stakeholders along with their respective stake in the company.

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Objects of the Issue: This chapter assumes high degree of significance in the RHP as it answers the very first question that comes to the mind of the investors that for what reason the company is going public. It entails the objectives of the issue as where and how the company is going to deploy the funds raised from the issue. At times the company induces the fund requirements from the internal accruals that can be from the present business profits of the company or through the debt syndication from banks along with the issue proceeds.

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Company sometimes also utilize the issue proceeds to repay its debt so as to reduce its interest burden. Thus, it contains the purposes of the issue with their respective amount being required.

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Financial Information: This includes all the financial statements of the company on the stand alone and consolidated basis viz. Profit and loss statement, balance sheet, fund flow statement. These statements show the performance of the company from past 4-5 years along with the annexure that details various heads of these statements. Financial Statements helps the investors in knowing the health of the company in numbers.Various ratios and multiples are arrived with the help of these statements.

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Management Discussion and Analysis: This chapter summarizes the company businesses and its development in due course of time. Year-on-year financial comparison is explained in this part of the document. This helps us in knowing the management’s efficiency to grow a company. Certain important events, factors affecting the operations of the company or some specific strategies of the company are explained in this part of the document.To sum up, RHP being the formal document of the company plays an integral role in assessing the company’s business prospects and thus helps investors in taking decision for subscribing an IPO or otherwise.

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However, it is generally perceived as a lengthy exercise by some section of investors.This can be achieved by going through the above discussed topics that can impart all the relevant information of the company leading to a wise investment decision. After all, “Moneywise Be wise”.

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JSW Energy IPO Receives Tepid Response

The Rs 2,700-crore initial public offering


of JSW Energy got subscribed a modest 1.67 times on the final day of issue today, reflecting muted investor sentiment amid poor performance by other power sector majors in the bourses.

The IPO of JSW Energy received bids for over 38 crore shares, against 22.76 crore shares on offer, garnering a demand of 1.67 times the shares on offer, as per data available on the National Stock Exchange.

Analysts said the weak response of retail investors in the issue shows that investors prefer to stay away from the power sector.

“The memories of recent power IPO listing debacle is still fresh in the mind of investors. It was mainly IPO financing based demand as only institutional investors are participating who mainly brings in borrowed money,” SMC Capitals Equity Head Jagannadham Thunuguntla said.

The portion reserved for qualified institutional buyers got subscribed 2.88 times, while the high networth individuals bid for 0.74 per cent of the shares on offer. Retail investors portion remained got subscribed 0.17 per cent.

“Most of the power sector stocks are trading about 20-30 per cent below issue price. JSW Enery is likely to witness lukewarm debut on the bourses on the day of listing as the actual price discovery is yet to happen,” Thunuguntla added.

Are Retail Investors Staging a Comeback in Country’s Primary Market ?

Are Retail Investors Staging a Comeback in Country's Primary Market ?

Are Retail Investors Staging a Comeback in Country's Primary Market ?

In what could be viewed as a sign of revival of retail interest in the country’s primary market, the initial public offering of Indiabulls Power has received over 31,000 applications from retail investors on the first day of its issue.

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Although the retail portion of the offering remained under subscribed, the interest was more than what was seen in three major IPOs of the fiscal — NHPC, Oil India and Adani Power.

According to an analysis, NHPC‘s over Rs 6,000 crore issue received 30,474 retail applications on the first day.

Adani Power‘s Rs 3,610 crore issue got only 15,000 such applications.

The Rs 4,982 crore issue of OIL received 7,700 applications.

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“Retail investors are gradually staging a comeback and it is a pleasant surprise for the primary market,” SMC Capital Equity Head Jagannadham Thunuguntla said.

The Rs 1,700-crore initial public offer of Indiabulls Power, which hit the market yesterday, got subscribed nearly six times, as flooded the counter with maximum number of bids.

However, bids from retail investors on the first day of subscription accounted for only 37 per cent of the shares reserved for them.

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India Inc Raises Rs.40K cr in Debt Market in Q1 :)

Indian-inc-raises-40k crores

Improved investment sentiments have led corporate India‘s fund raising plans to sky high level.

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With more than half of the fund being mobilized by financial institutions, India Inc’s fund raising through private placement of debt has touched Rs 40,300 crore in the Q1 of the current fiscal.

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This is an increase of huge 42% from first quarter of last financial year.

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However, the April-June quarter of the present financial year saw a mobilization through debt (bonds) on private placement basis of Rs 40,300 crore, staggering 42% up from Rs 28,385 crores, raised in the first quarter of last financial year.

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Moreover, the largest mobilization through the route came in from financial institutions and banks with more than 67 institutions and corporate houses raising the full amount during the June quarter.

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Private placement of Debt is issue of securities, usually bonds that are sold without an initial public offering to a small number of private investors.

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Further, fund raising of financial institutions through debt private placement increased 35% to Rs 21,002 crore in the June quarter.

Additionally, private sector beat public sector in terms of fund raising where its mobilization increased by 50% from Rs 11,184 crore to Rs 16,753 crore.

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On the other hand, public sector financial institutions combined together, saw a decline in fund raising activity, whose mobilization stands 58% of the total amount, slipping 61% that mobilized in the previous year.

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Future Venture to Re-File for IPO Soon :)

future group

Future Venture is likely to approach Sebi again for an initial public offering soon, as the validity of the earlier approval by the market watchdog lapsed this month.

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“We are going for a fresh filing (for IPO) with Sebi,” Future Group Chairman Kishore Biyani told PTI.

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The company, which is a part of diversified Future Group, had received the Securities and Exchanges Board of India (Sebi) approval for IPO on September 4, 2008.

As per regulations, a company has to hit the capital markets within 12 months of receiving the Sebi nod.

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Last year, the company had planned to raise up to Rs 1,000 crore through a public offering of about 374 crore shares so as to fund the group’s expansion plans.

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However this time amount to be raised from the capital market would be less than the previously planned Rs 1000 crore.

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Liquidity crunch and volatility in recent times had forced many companies including Future Venture to either postpone or shelve their plans to mop up funds from the capital market.

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“The planned IPO by Future Venture was actually a by-product of the bull market.”

“After the success of Future Capital IPO last year, the Future group thought of tapping the capital market with another offer, although there was no actual necessity of fund raising,” SMC Capital Equity Head Jagannadham Thunuguntla said.

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The Future Group, which is into various businesses apart from retail, is currently looking at ways to raise funds.

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uture Venture is likely to approach Sebi again for an initial public offering soon, as the validity of the earlier approval by the market watchdog lapsed this month.

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“We are going for a fresh filing (for IPO) with Sebi,” Future Group Chairman Kishore Biyani told PTI.

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The company, which is a part of diversified Future Group, had received the Securities and Exchanges Board of India (Sebi) approval for IPO on September 4, 2008.

As per regulations, a company has to hit the capital markets within 12 months of receiving the Sebi nod.

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Last year, the company had planned to raise up to Rs 1,000 crore through a public offering of about 374 crore shares so as to fund the group’s expansion plans.

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However this time amount to be raised from the capital market would be less than the previously planned Rs 1000 crore.

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Liquidity crunch and volatility in recent times had forced many companies including Future Venture to either postpone or

As IPO Market Falters,Companies Eye New Funds !!

Market falters

The post-listing dismal performance of the initial public offering ( IPO) of public sector power major NHPC Ltd is set to force many companies to rework their fund- raising strategies in the coming months.

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Qualified institutional placements (QIPs), global depository receipts (GDRs) or those shares issued to overseas investors and listed on exchanges abroad are likely to be the most favoured means for these purposes, leading investment bankers said.

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Some of the companies are already planning to revise their issue prices downwards to ensure that offerings will not fall through.

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Oil India Ltd (OIL), which is open for subscription now, is the first to draw lessons from the NHPC episode and revise its issue price.

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OIL has revised their price band to Rs 950- 1,050 per share, from Rs 1,250- 1,400, after the NHPC episode as per few bankers.

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NHPC fixed the price of its IPO at Rs 36 per share last month.

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Though the stock listed on September 1 at eight per cent premium to the issue price, at Rs 39, it closed just 70 paise or 1.94 per cent above the issue price.

Over the last two days, the premium further narrowed to just 10 paise.

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Jagannadham Thunuguntla, equity head of SMC Capitals Ltd, cites heavy selling, coupled with no follow- up buying as the reasons for the lacklustre listing of NHPC.

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NHPC’s IPO price was 30 times its earnings per share (EPS).

“In fact, well- established companies like NTPC are available at much lower valuations. Hence, there was no follow- up buying from the investors on NHPC listing,” Thunuguntla explained.

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Further, majority of the oversubscription is not due to genuine investor interest but is due to the borrowed funding through ‘IPO financing“.

Naturally, all such investors were forced to sell on the day of listing as these involve a lot of interest cost. This resulted in heavy selling on the day of the listing,” he added.

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After the market rebound since March 2009, fundstarved companies started tapping the market.

And when the elections gave a more convincing victory to the UPA combine, the market gathered greater strength.

Since March, companies were able to raise funds to the extent of Rs 21,191 crore through 22 QIPs; and $ 1.88 billion through four GDRs/ ADRs (funds raised from US- based investors and listed in the US).

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However experts maintained that these are the sources of funds for which few institutional investors are to be convinced, rather than working on creating confidence among the whole investor community.

At the same time such companies should have a high corporate governance track- record as well.

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price band

India May Trigger $39 Billion of Share Sales With Ownership Cap :)

India Shines

India may trigger as much as 1.9 trillion rupees ($39 billion) in stock sales, equivalent to five years of equity offerings, with a proposal to limit stakes of controlling shareholders.

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Prime Minister Manmohan Singh’s government is considering a plan that would require at least 25 percent of a company’s stock to be traded.

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The rule would prompt equity sales in 560 of Mumbai’s 3,335 most-active stocks, such as NMDC Ltd. and Steel Authority of India Ltd., according to data compiled by Bloomberg.

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The changes may encourage foreign investment by bringing Indian regulations in line with the U.S., U.K. and Hong Kong.

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The 25 percent minimum would be good for the long-term Indian market. There are many very attractive companies with small floats that investors would like to be able to invest in.

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The rule change would require the government, whose constitution embraces socialism, to reduce dominant stakes in key industries such as steel making, oil and electricity supply.

The top 10 companies that would have to sell stock are state- run, accounting for about 80 percent of the total by value.

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Sensex Surges :

The Bombay Stock Exchange’s Sensitive Index, or Sensex, has climbed 61 percent this year, the eighth-best performer among 89 measures tracked by Bloomberg.

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Growth in Asia’s third-largest economy may accelerate to 7.75 percent after the government initiated stimulus plans to bolster banks’ capital and spur consumer spending, according to the finance ministry.

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International funds have bought 357.5 billion rupees of Indian stocks this year through Aug. 11, compared with record net sales of 530 billion rupees for all of 2008, according to data on the Securities and Exchange Board of India Web site.

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The government plans to boost funding for a rural jobs program by selling shares in some state-run companies.

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No Minimum :

Rules allow companies with a free-float worth at least 1 billion rupees to have as little as 10 percent traded, while there is no minimum for state-run enterprises, the ministry’s Web site says.

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The Sensex has returned 192 percent over the past five years, second in Asia only to Indonesia.

Since 2005, companies have raised 1.89 trillion rupees in share sales, including 116 billion rupees in January last year by Mumbai-based Reliance Power Ltd. that marked the country’s biggest initial public offering.

New Delhi-based DLF Ltd., India’s largest real estate developer, sold 92 billion rupees of stock in June 2007.

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Government Control :

India’s government plans to sell 8.38 percent of NMDC, the nation’s largest iron-ore producer.

The stake would fetch 120 billion rupees at current prices.

The government holds 98.4 percent in Hyderabad-based NMDC, and 85.8 percent of New Delhi-based Steel Authority of India, the nation’s second-biggest producer, according to Bloomberg data.

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“The sheer magnitude of offloading involved may result in an overhang on the secondary capital markets,” Jagannadham Thunuguntla, the head of equities at SMC Capitals Ltd. in New Delhi, said in an interview.

“The capital market may find it difficult to absorb such heavy equity” he added.

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The Securities and Exchange Board of India advocates “a phased approach, as companies may need time” to sell shares, N. Hariharan, a Mumbai-based spokesman for the market regulator, said in an e-mail Aug. 7.

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‘Phased Manner’

The proposal “should be positive for markets if introduced in a phased manner,”

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Such a change is a welcome one.

Ensuring a reasonable minimum float would help avoid share price manipulation, scams, abuse by majority shareholders, etc. This would constitute a positive structural change.

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India may trigger as much as 1.9 trillion rupees ($39 billion) in stock sales, equivalent to five years of equity offerings, with a proposal to limit stakes of controlling shareholders.

Prime Minister Manmohan Singh’s government is considering a plan that would require at least 25 percent of a company’s stock to be traded. The rule would prompt equity sales in 560 of Mumbai’s 3,335 most-active stocks, such as NMDC Ltd. and Steel Authority of India Ltd., according to data compiled by Bloomberg.

The changes may encourage foreign investment by bringing Indian regulations in line with the U.S., U.K. and Hong Kong, said Anshul Krishan, the Mumbai-based head of Goldman Sachs Group Inc.’s India financing group. The sales, equal to about 4 percent of India’s $1 trillion stock market, probably won’t affect prices if they’re staggered over time, said Purav Jhaveri, senior investment strategist at Franklin Global Advisers.

“The 25 percent minimum would be good for the long-term Indian market,” Seth Freeman, chief executive officer of EM Capital Management LLC in San Francisco, which advises investors on emerging markets and runs the EM Capital India Gateway Fund, said in an e-mail response to questions. “There are many very attractive companies with small floats that investors would like to be able to invest in.”

The rule change would require the government, whose constitution embraces socialism, to reduce dominant stakes in key industries such as steelmaking, oil and electricity supply. The top 10 companies that would have to sell stock are state- run, accounting for about 80 percent of the total by value.

Sensex Surges

The Bombay Stock Exchange’s Sensitive Index, or Sensex, has climbed 61 percent this year, the eighth-best performer among 89 measures tracked by Bloomberg. Growth in Asia’s third-largest economy may accelerate to 7.75 percent after the government initiated stimulus plans to bolster banks’ capital and spur consumer spending, according to the finance ministry.

International funds have bought 357.5 billion rupees of Indian stocks this year through Aug. 11, compared with record net sales of 530 billion rupees for all of 2008, according to data on the Securities and Exchange Board of India Web site.

Finance Minister Pranab Mukherjee said in his July 6 budget speech that a rule requiring a public float of at least 25 percent for listed companies should be enforced uniformly, even for state-run enterprises that had been exempted. The government plans to boost funding for a rural jobs program by selling shares in some state-run companies.

No Minimum

Rules allow companies with a free-float worth at least 1 billion rupees to have as little as 10 percent traded, while there is no minimum for state-run enterprises, the ministry’s Web site says.

“The average public float in Indian listed companies is less than 15 percent,” Mukherjee said. “Deep, non-manipulable markets require larger and diversified public shareholdings.”

The Sensex has returned 192 percent over the past five years, second in Asia only to Indonesia. Since 2005, companies have raised 1.89 trillion rupees in share sales, including 116 billion rupees in January last year by Mumbai-based Reliance Power Ltd. that marked the country’s biggest initial public offering. New Delhi-based DLF Ltd., India’s largest real estate developer, sold 92 billion rupees of stock in June 2007.

Government Control

India’s government plans to sell 8.38 percent of NMDC, the nation’s largest iron-ore producer, Steel Secretary Pramod Rastogi said Aug. 5. The stake would fetch 120 billion rupees at current prices, he said. The government holds 98.4 percent in Hyderabad-based NMDC, and 85.8 percent of New Delhi-based Steel Authority of India, the nation’s second-biggest producer, according to Bloomberg data.

“The sheer magnitude of offloading involved may result in an overhang on the secondary capital markets,” Jagannadham Thunuguntla, the head of equities at SMC Capitals Ltd. in New Delhi, said in an interview. “The capital market may find it difficult to absorb such heavy equity.”

GMR Infrastructure Ltd., based in Bangalore, scrapped a $500 million international sale on June 30 as at least 40 companies announced plans to sell more than 350 billion rupees of shares, mostly to foreign institutional investors.

The Securities and Exchange Board of India advocates “a phased approach, as companies may need time” to sell shares, N. Hariharan, a Mumbai-based spokesman for the market regulator, said in an e-mail Aug. 7.

‘Phased Manner’

The proposal “should be positive for markets if introduced in a phased manner,” Franklin’s Jhaveri said in an e-mail response to questions. Franklin Templeton Investments in San Mateo, California manages $482.4 billion worldwide, including more than $3 billion in Indian stocks.

The Finance Ministry sought public comment on the plan on its Web site July 9. Singh’s administration plans to take up the issue after completing 100 days in office, Junior Finance Minister Namo Narain Meena said in a written statement to parliament in New Delhi on Aug. 4. Singh was sworn in on May 22.

The changes are important for protecting shareholders in India, said Andrew Foster, who oversees $2 billion in assets, including Indian securities, at Matthews International Capital Management LCC in San Francisco.

“Such a change is a welcome one,” Foster said in an e- mailed response to questions. “Ensuring a reasonable minimum float would help avoid share price manipulation, scams, abuse by majority shareholders, etc. So I think this would constitute a positive structural change.”