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India’s Adani Power Shares Make Disappointing Debut

20 August, 2009

* Bounces around issue price after tepid start

* Indian firms should temper IPO price expectation-analysts

Shares in Adani Power bounced around the issue price of 100 rupees after a shaky opening for India’s first large IPO in 18 months, a performance that may prompt other listing hopefuls to lower their valuation expectations.

At 0529 GMT, shares in Adani Power, which raised $630 million in the IPO, were down 0.8 percent at 99.20 rupees on the Bombay Stock Exchange after debuting 5.15 percent higher. The benchmark BSE index .BSESN was up 1.7 percent. The listing was almost reminiscent of the stock market debut by Reliance Power, which raised almost $2.9 billion in India’s largest-ever IPO in early 2008 but has not closed above the issue price.

“The market will find its own price,” said Adani Power Chairman Gautam Adani in a response to a question on the tepid listing.

“I think the company’s performance in the coming quarters with turbines getting added along with the capacity building up … will be able to see the market take care of the pricing,” he said.

Analysts had expected Adani to open 6-10 percent higher but slip below the issue price on project execution risk. The firm, which is developing power plants with a combined capacity of 6,600 megawatts generates only 330 megawatts now.

At 100 rupees a share Adani would be valued at 4 times book compared with 3.1 times for state-run power giant NTPC Ltd, which generates 31,000 megawatts or a quarter of the country’s power.

“Markets are comparatively weaker than when the issue opened for subscription. So I am not surprised given the project execution risks,” said Ambareesh Baliga, vice-president at Karvy Stock Broking.

“Investors apply for IPO listing gains. It would augur well for IPOs to leave more on the table for investors.”

Adani Power last month sold 13.84 percent of the company or 301.65 million shares in an offering that was subscribed more than more than 20 times, with large funds bidding heavily.

The company, which initially planned the IPO last year but deferred it amid the global financial crisis, plans to spend 21.9 billion rupees from the IPO proceeds for building the power plants.

Indian firms have raised almost $10 billion by selling shares so far this year, surpassing the money raised in 2008, helped by an almost 85 percent surge in the BSE index from its March low.

However, at Wednesday’s close the benchmark had fallen 5.5 percent in August.

Adani’s tepid listing could dent investor appetite for high-priced offering and companies will have to scale down their pricing to keep the market going.

State utility NHPC Ltd, which raised $1.25 billion earlier this month in an IPO that was subscribed nearly 24 times, is expected to list in early September.

Another state-run firm Oil India is eyeing a $500-$600 million IPO in September and a clutch of companies including at least a dozen government firms are eyeing share sales to fund expansion in Asia’s third-largest economy.

DSP Merrill Lynch, Enam Securities, IDFC-SSKI, JM Financial, Kotak Mahindra Capital Co, Morgan Stanley and ICICI Securities, SBI Capital Markets were the arrangers to the issue.


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India’s Adani Power Shares Make Disappointing Debut

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