L&T Finance Holdings Ltd, the financial services arm of the L&T group, is planning to come out with its initial public offering next week, looking to raise Rs 1,245 crore. The subsidiary of the construction and engineering giant Larsen & Toubro (L&T) has cut its public issue size by 10 per cent or Rs 175 crore, as per its red herring prospectus.

While L&T Finance Holdings had initially filed its draft red herring prospectus (DRHP) in September, 2010, looking to raise Rs 1,500 crore, it filed a revised DRHP in March this year, looking to raise Rs 1,750 crore (including a pre-IPO placement option of up to Rs 400 crore).

Earlier this month, the firm had announced a pre-IPO placement of Rs 330 crore or $75 million, with Capital International’s p company.

The reduction in issue may have come as the capital markets remain weak for IPOs on the backdrop of high inflation, rate hikes and the Eurozone debt crisis.

While the issue will look at raising Rs 1,075 crore from the public and the institutional investors (including Rs 160 crore portion reserved for anchor investors), the remaining Rs 170 crore is reserved for L&T Finance employees and shareholders of the parent firm L&T.

In a televised Press conference today, L&T Finance Holdings had announced an indicative price band of Rs 51-Rs 59 for the issue. Interestingly, the parent firm L&T itself had infused Rs 425 crore through a preferential allotment in the company in September '10 at Rs 67 per share.

At the lower end of this band, this indicates a dilution of 14.18 per cent stake (not including the stake sold to Capital International) and a post-issue valuation of Rs 8,778 crore. At the upper end of this band, the issue will involve a dilution of 12.5 per cent stake, with a valuation of Rs 9,960 crore.

For FY11, L&T Finance Holdings reported 48 per cent increase in the total income to Rs 2,115 crore while the net profit rose 49.2 per cent to Rs 392.5 crore. It had a total income of Rs 1,423 crore and a net profit of Rs 263 crore in FY10.

From the issue proceeds, L&T Finance Holdings plans to use Rs 345 crore to repay an inter-corporate deposit to its promoter group. With the reduction in the IPO size, the firm has reduced the size of the planned infusion in subsidiaries. As per the RHP, it will now infuse Rs 515 crore, as compared to the earlier amount of Rs 570 crore in L&T Finance (it operates the retail and corporate finance business), and Rs 485 crore, instead of Rs 535 crore, in L&T Infrastructure Finance Company (the infrastructure financing business).

JM Financial Consultants, Citigroup Global Markets and HSBC Securities are the joint global co-ordinators and the book-running lead managers (BRLMs) to the issue. Credit Suisse Securities and Barclays Securities are the BRLMs while Equirus Capital is the co-BRLM.

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