The Indian capital market turned black into gold last week. The initial public offer of Coal India was set to be the largest in Indian history from the moment it opened, but even the biggest bulls in the ring were left stunned by the money it mined by the time it closed: a mobilization of Rs 2.36 trillion ($53bn), over 15 times the target of Rs 155 billion.
It's a mind-boggling testimony to the amount of money floating around in Indian markets, the hunger for good stocks, and the sheer euphoria about the India story. The success of Coal India also sets an impressive benchmark for biggies like SAIL, Hindustan Copper, Manganese Ore and Power Grid which are lined up to tap the capital markets in coming months.
It can be a little hard to get one's head around all the zeroes in a figure like Rs 2.36 trillion (or $53bn). So here's some perspective. The amount of money that flowed into the offering by the `black diamond' in just four days is more than last year's GDP of about 140 countries. Nearer home, it is more than the GDP of Srilanka ($42 billion) and four times that of Nepal ($12.5 billion), according to data on the World Bank's website. It is also almost 10 times India's health budget of Rs 251.54 billion for 2010-11, nearly five times our education budget of Rs 499.04 billion and almost one-fourth the size of the Union budget itself.
Here's another fascinating comparison: Foreign institutional investors (FIIs) have pumped in a record Rs 1.08 trillion into Indian stocks so far this year. For the Coal India IPO alone, they have put in bids worth Rs 1.20 trillion. This is one of the best PSUs (CIL is the world's largest coal producer and accounts for 80% of India's coal production) and was offered at a very good valuation. The huge oversubscription also reflects the easy liquidity situation abroadd. With interest rates at extremely low levels in most developed countries, FIIs can easily borrow there and pump in money into attractive stocks in emerging markets, which is exactly what happened in this case.
The offer also witnessed a rise in the average retail application size to Rs 70,000-75,000 from Rs 40,000-45,000 in other recent offerings. The strong retail participation in the IPO might actually make the case stronger for SEBI to increase the maximum retail application size to the proposed Rs 0.2 million..
Demand was strongest from qualified institutional buyers, which includes FIIs, mutual funds and insurance firms, who bid for 24.7 times the shares on offer to them. Initial indications are that retail investors bid 2.4 times the shares allocated to them, with a record of 1.8 million applications, and this figure was expected to rise. Ironically, Coal India employees themselves stayed away from the IPO, with their bids amounting to barely 9% of the shares reserved for them.
Understandably, the government, which is looking to divest 10% of its 100% stake in the company, was ecstatic at the positive response. Comparisons are being drawn between this IPO and the Reliance Power IPO that closed in January 2008 and was subscribed 73 times. However, the rules of bidding were markedly different then. During the Reliance Power IPO, institutions were allowed to bid with just 10% margin money. So, if an FII had $50 million to put into the offer, it could actually put in a bid for shares worth $500 million. But a few months ago, Sebi scrapped this practice. So, an FII can bid $50 million for Coal India only if it wants shares worth that much.
Market players also believe with a series of PSUs now lined-up for divestment, the success of this offer would now make the government more confident about these offers. This would also give investors much higher confidence to invest in PSU stocks in general, and the forthcoming divestments in particular.www.coalindia.in/
It's a mind-boggling testimony to the amount of money floating around in Indian markets, the hunger for good stocks, and the sheer euphoria about the India story. The success of Coal India also sets an impressive benchmark for biggies like SAIL, Hindustan Copper, Manganese Ore and Power Grid which are lined up to tap the capital markets in coming months.
It can be a little hard to get one's head around all the zeroes in a figure like Rs 2.36 trillion (or $53bn). So here's some perspective. The amount of money that flowed into the offering by the `black diamond' in just four days is more than last year's GDP of about 140 countries. Nearer home, it is more than the GDP of Srilanka ($42 billion) and four times that of Nepal ($12.5 billion), according to data on the World Bank's website. It is also almost 10 times India's health budget of Rs 251.54 billion for 2010-11, nearly five times our education budget of Rs 499.04 billion and almost one-fourth the size of the Union budget itself.
Here's another fascinating comparison: Foreign institutional investors (FIIs) have pumped in a record Rs 1.08 trillion into Indian stocks so far this year. For the Coal India IPO alone, they have put in bids worth Rs 1.20 trillion. This is one of the best PSUs (CIL is the world's largest coal producer and accounts for 80% of India's coal production) and was offered at a very good valuation. The huge oversubscription also reflects the easy liquidity situation abroadd. With interest rates at extremely low levels in most developed countries, FIIs can easily borrow there and pump in money into attractive stocks in emerging markets, which is exactly what happened in this case.
The offer also witnessed a rise in the average retail application size to Rs 70,000-75,000 from Rs 40,000-45,000 in other recent offerings. The strong retail participation in the IPO might actually make the case stronger for SEBI to increase the maximum retail application size to the proposed Rs 0.2 million..
Demand was strongest from qualified institutional buyers, which includes FIIs, mutual funds and insurance firms, who bid for 24.7 times the shares on offer to them. Initial indications are that retail investors bid 2.4 times the shares allocated to them, with a record of 1.8 million applications, and this figure was expected to rise. Ironically, Coal India employees themselves stayed away from the IPO, with their bids amounting to barely 9% of the shares reserved for them.
Understandably, the government, which is looking to divest 10% of its 100% stake in the company, was ecstatic at the positive response. Comparisons are being drawn between this IPO and the Reliance Power IPO that closed in January 2008 and was subscribed 73 times. However, the rules of bidding were markedly different then. During the Reliance Power IPO, institutions were allowed to bid with just 10% margin money. So, if an FII had $50 million to put into the offer, it could actually put in a bid for shares worth $500 million. But a few months ago, Sebi scrapped this practice. So, an FII can bid $50 million for Coal India only if it wants shares worth that much.
Market players also believe with a series of PSUs now lined-up for divestment, the success of this offer would now make the government more confident about these offers. This would also give investors much higher confidence to invest in PSU stocks in general, and the forthcoming divestments in particular.www.coalindia.in/
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