Reliance Power issue mops up over Rs 1 trillion on debut

Anil Ambani is the new czar of India’s capital markets. Ambani on Tuesday raised an astonishing Rs 1.08 trillion — that’s a string of 12 zeroes — in a matter of five hours after the public issue of Reliance Power opened for subscription at 10am.
The cash-raising feat signalled the birth of a new Croesus with the magical gift of his late father Dhirubhai Ambani to ignite a mad craze for a stock that carried the Reliance tag.
Reliance Power — which has no real assets on the ground as yet but hopes to build 13 power plants with an installed capacity of 28,000MW in the next five years — is offering 228 million shares to the public in a price range of Rs 405 to Rs 450 a share.
Thirty per cent of the offering has been earmarked for retail bidders who cannot apply for more than 225 shares. For the first time, the retail bidder is getting a Rs 20 discount to the issue price that will be determined by the so-called book-building route, which strikes a balance between varying price bids and demand for the stock.
The frenzy was evident from the very start: within the first 60 seconds, the issue had racked up collections of Rs 10,260 crore.
Finance minister P. Chidambaram might want to chew over the fact that Anil Ambani managed to raise more in a day than the government proposed to garner by way of income-tax over an entire year.
Most of the bids today came in at the higher end of the band; one reason for this was the fact that institutional bidders stumped up large bids. Close to 60 per cent of the issue was apportioned to institutional bidders and this segment was oversubscribed 16 times at the end of the first day.
The subscription window closed at 3 p.m. but the process of counting up the bids went on till late in the night. At the end of the first day, the IPO had received bids for 2.42 billion shares, which means it was oversubscribed 10.64 times.
Another big irony is that the country really doesn’t have a large equity cult: a small fraction of the financial savings of households was shovelled into stocks and debentures in 2006-07, most of it through mutual funds.
The retail investor segment was, however, somewhat sluggish with a subscription level of 0.6 times. The issue closes on Friday and market pundits expect this to pick up over the next three days. Merchant banking circles said this was normal as retail investors tend to bid for an IPO in the last two days.
Reliance Power is the first company that Anil has fashioned; unlike the others, it isn’t one of the breakway companies that were spun off after the demerger of the Reliance group in January 2006.
So, why were investors scooping up shares in a new company that had built no projects and where profits are not expected for another three years?

Capital market mavens attribute two reasons for the huge interest. First, the company belongs to the Anil Ambani group which has given splendid returns to investors since it was created in 2006.
Second — and more important — investors have been drawn to the issue in the hope of making a killing when the stock lists on the bourses in the first week of February.
The grey market buzz is that the stock will list anywhere between Rs 800 and Rs 900, almost double the issue price. Some optimists are betting that the stock will top Rs 1,000.
Said Harendra Kumar, head research at ICICI Direct, “The IPO comes from a large group which has given good returns to shareholders. Many investors feel that Reliance Power will be a multi-bagger and that they will get good listing gains.”
Market experts, however, say it’s difficult to forecast what the final numbers will be after January 18, when the issue closes.
“Usually, the QIBs (qualified institutional bidders) tend to slow down after the first day. The issue could, therefore, see an interest of around Rs 2 trillion when it closes,” said an analyst.