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By Hiral Vora
MUMBAI, Feb 11 (Reuters) - Shares in India's Reliance Power
<RPOL.BO> fell as much as 14 percent in a chaotic debut on Monday
as global market turmoil dented investor demand following its $3
billion initial public offering, the country's largest.
The poor start for a share that had initially been expected
to double was a further setback for India's record pipeline of
IPOs this year. Two offerings, including a $1.6 billion one from
Emaar MGF Land, were shelved last week after a tepid response
triggered by the global credit crunch and U.S. recession worries.
"It will definitely hit investor sentiment in other IPOs as
new entrants in the market will think several times before
pricing their offer aggressively," said D.D. Sharma, vice
president at Anand Rathi Securities.
Utility Reliance Power <RPOL.NS>, part of the Anil Dhirubhai
Ambani Group, sold out within a minute last month when it opened
its record IPO.
The offer was priced at 450 rupees ($11.4) a share, the top
of range, making it the world's biggest offering so far in 2008,
according to Thomson Financial.
Reliance Power plans to build power plants across India using
funds raised by selling around a tenth of the company.
Analysts first expected Reliance to touch 900 rupees when it
began trading, but stock market turmoil lowered investor risk
appetite and analysts subsequently said a start of 75-150 rupees
above the IPO price was more realistic.
In the event, it opened flat, rose briefly to 599.90 rupees,
and quickly dropped to a low of 389 rupees, according to data
from the Bombay Stock Exchange and the National Stock Exchange.
By 0705 GMT, the stock was down 9.3 percent at 408 rupees,
with the benchmark index <.BSESN> 4.1 percent lower.
Shares in Reliance Energy <RLEN.BO>, which holds 45 percent
of Reliance Power, were down nearly 11 percent at 1,750 rupees.
Chairman Anil Ambani rang the bell at the Bombay Stock
Exchange for the start of trade on Monday, saying: "I'm confident
our long-term investors will reap rich rewards by investing in
the company."
AGGRESSIVE PRICING The issue, managed by Kotak Mahindra Capital Co, UBS
<UBSN.VX>, ABN AMRO <AAH.AS>, Deutsche Equities <DBKGn.DE>, Enam
Securities, ICICI Securities, JM Financial <JMSH.BO> and JPMorgan
<JPM.N>, had been helped by the Ambani family name.
There are no forecasts for the company as it does not have
any operational assets, but plans to set up about 28,000
megawatts of power projects.
The utility saw its IPO subscribed 73 times, even though
analysts said it was unlikely to report strong profits for five
years. The 450 rupee offer price valued it at $30 billion.
But since the offer closed, market conditions have
deteriorated and the benchmark index has lost about 18 percent
from an all-time high of 21,206.77 hit on Jan. 10.
Analysts said Reliance Power had been overpriced relative to
India's top power producer NTPC Ltd <NTPC.BO>, which is valued at
more than $42 billion and trades at more than 21 times forward
earnings.
"In this kind of a market you are better off investing in
companies based on their earnings potential than in those whose
valuations depend on their future stock movements," said Nilesh
Jasani, head of research at Credit Suisse.
ALARM BELLS
Warning signs came last week when Wockhardt Hospitals Ltd and
then Emaar MGF, the Indian joint venture of Dubai's Emaar
Properties <EMAR.DU>, pulled their IPOs due to poor response and
worries the shares would fall on their debuts.
Until then, India had a record IPO pipeline of $15.8 billion
for 2008, according to Thomson Financial. Government-run State
Bank of India <SBI.BO> plans a $4.2 billion rights issue soon.
But Reliance Power's reception may make companies think
twice.
Reliance Communications <RLCM.BO>, another Anil Ambani firm,
is planning an IPO for its telecom towers unit, Reliance Infratel
Ltd, which media reports and bankers say aims to raise $1-1.5
billion.
"If the equity financing route is closed for a few quarters
it will have an impact on both the markets and the economic
fundamentals," Jasani at Credit Suisse said.
Founded by Dhirubhai Ambani, the Reliance group of companies
were divided between the late Ambani's sons in 2005: Anil, who
has interests in telecoms, financials, media and power; and elder
brother Mukesh, who controls India's top listed firm, oil and
petrochemicals giant Reliance Industries Ltd <RELI.BO>.
For a FACTBOX of Indian IPOS, click [ID:nBOM113967]
For NEWSMAKER on Anil Ambani, click [ID:nBOM7784]
($1 = 39.6 rupees)
(Additional reporting by Himangshu Watts; Writing by Charlotte
Cooper; Editing by Ranjit Gangadharan & Lincoln Feast)
(([email protected] +91 22 6636 9030 Reuters
Messaging: [email protected]))
Keywords: RELIANCEPOWER/IPO