With its investor roadshow complete, India's GMR Infrastructure Ltd has managed to attract just over half the $1 billion (around Rs4,750 crore) it was initially hoping to raise, according to banking sources-an ominous sign for issuers looking to cash in on a stock market rally. While share sales are beginning to flow after a 15 month drought as India's main index has surged 90% from its 2009 low in March, wary investors are concerned the run-up has been too fast. Rapid surge: The BSE building in Mumbai. The Sensex has gained 90% from its 2009 low in March. Ashesh Shah / Mint "Clearly quality is coming into play now," said Jayesh Shroff, who oversees $1.3 billion for SBI Mutual Fund. "There will be some inflection point. Some issues may not sail through at some prices." So far in 2009, 11 Indian firms have raised nearly $2.6 billion, mostly in the last two months. Another three dozen firms, including GVK Power Ltd and JSW Steel Ltd, have announced their intentions to raise $8.5 billion in share sales, Thomson Reuters data showed.
Property and construction firms, reeling from debt-heavy balance sheets, form a majority of this group. Most are opting for the sales of shares to institutional funds, which can be done faster than a standard follow-on offering. Bankers reckon as few as one-third of the planned offers will succeed as investors are faced with multiple choices and stocks are no longer cheap. Shares in top real estate firm DLF Ltd have jumped nearly three-quarters since its founders raised $780 million in mid-May, handing out handsome returns to its investors.But new investors in GMR, which operates two of India's biggest airports in New Delhi and Hyderabad, would be buying into a firm that has already at least doubled in value since February and trades at 93 times its forecast earnings for fiscal 2010. "We are concerned with a run-up (in prices). Investors don't like this," said Ashutosh Agarwala, GMR's chief financial officer for strategic finance. "But having said that, I don't think it will matter. We haven't decided the pricing, but all I can say is the (placement) will be investor friendly," he said. GMR still cannot launch its offer due to restrictions on pricing from the market regulator. Under pricing rules for share sales to institutions, offers must be priced at a minimum of the average price in the past two weeks or six months, whichever is higher, making newer issues dearer following the recent rally. GMR's current market price of Rs158 is well below the regulator's floor price of around Rs185.
Overseas heavyweights including HSBC Holdings Plc., Government of Singapore Investment Corp. Pte Ltd, the UK's Prudential Plc. and T. Rowe Price Group Inc. have been among the most active investors in recent offers in India, bankers said, and are expected to become more cautious after sharp run-up in share prices. Most of the share sales so far have gone towards retiring high-cost debt and would not help in generating fresh cash, eventually diluting earnings on expanded capital, analysts said. Even for firms working on new projects, returns will flow only after a few years, as in the case of GMR, which plans to use the proceeds to finance a slew of new road and power projects. "Indian industry is hungry for capital. If investors are indicating prices are high, companies will have to value it. Pricing power is still with the investors," said Girish Nadkarni, executive director at Avendus Capital, an investment bank. But firms such as Gammon Infrastructure Projects Ltd, which is debt free and plans to invest in new projects, insist offerings that will deliver strong cash flows are attractive enough for investors. "I have a queue of these guys waiting," said Parvez Umrigar, managing director at Gammon, which aims to sell shares worth $105 million.
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