Coal India?s IPO, which is slated for this October, is the second- largest IPO in the world for 2010. Adjusted for Purchasing Power Parity (PPP), the actual $3.8-billion Initial Public Offering (IPO), would be next only to the $19.2-billion IPO of Agricultural Bank of China. The latter had successfully raised money through a dual-listing in Hong Kong and Shanghai this year. It remains to be seen if Coal India scripts a similar success story.
As per an FE study, on a PPP basis, Coal India IPO would pip Japan?s Dai-ichi Life Insurance and that of Samsung Life Insurance (South Korea) for the second ranking. Based on absolute IPO amount (proposed), Coal India would rank fourth in the world for 2010, unless the $16-billion IPO of the US auto-maker General Motors goes through. The latter is planning a dual-listing at New York Stock Exchange and the Toronto Stock Exchange in November before the US congressional elections.
?Investor appetite would be good as international investing community usually invests in such large IPOs? says Prithvi Haldea, CMD of Prime Database, an IPO tracker. The advantage of being in the business of most sought after energy resource globally with near monopoly position could draw global investors, feel a section of market experts. Agricultural Bank of China?s IPO had elicited huge response from major global banks including from unexpected sources like Qatar Investment Authority and Kuwait Investment Authority.
While the global investors could ?fill? demand for the QIB (Qualified Institutional Buyers) portion, Coal India?s biggest challenge would be to elicit maximum ?retail? response for its IPO. In bulk of the large IPOs of 2010 in India, retail portion remained under-subscribed.
Back of the envelope calculations suggest it needs at least 6 lakh applications from retail investors if it has to get fully subscribed. ” Reliance Power IPOs got 46 lakh retail applications, while NTPC received more than 10 lakh retail applications. In a country of over a 1 billion and an active investor base of 1 crore, getting retail investors shouldn?t be a problem” Haldea said. Investment bankers though hint that Coal India will have to get its pricing and marketing right.
Coal India IPO on listing could comprise 0.25% of the overall market capitalisation of the country’s exchange. This is relatively lesser than that for Dai-ichi, Agricultural Bank of China and Samsung Life Insurance. A lower figure indicates the relative easiness to raise issues without disrupting the secondary market.
This year China has dominated the global IPO market, with 225 companies raising $49 billion at an average deal size of $ 218 million, according to Bloomberg data. The list of top 20 IPOs this year is also dominated by China, with seven of its companies featuring in it. In 2009 also was the global IPO market was dominated by China and Hong Kong, where 163 companies together raised $54 billion. Meanwhile, 38 Indian companies have raised $3.41 billion so far this year, making it the top 10 IPO markets in the world. India?s share could improve slightly when Coal India IPO takes place in October.
PPP is usually derived to find the relative strength of currencies in the world by comparing the relative price levels in different countries. It usually adjusts for differences in inflation and it is found by finding the extent of local currency required in each country to buy a common basket of goods and services. It is well known fact that India is fourth largest economy in the world on a PPP basis but twelfth largest on a nominal basis, as per US CIA data. Extending the logic, IPO numbers were also adjusted, since IPO raising in different markets has to be seen in the context of ‘investing’ power and PPP perhaps is the closest alternative. While the above argument could be countered with the logic of international investors also participating in such issues, the fact is also that usually they invest within the limits allocated for emerging markets.