Friday, September 11, 2009

Oil India IPO subscribed 31 times; QIBs bid the most

Oil India’s initial share sale to raise Rs. 2,782 crore (Rs. 27.82 billion) received demand for as much as Rs. 86,000 crore (Rs.860 billion), as its shares are seen offering profits since its valuation is lower than rivals ONGC and Cairn India. The 2.65-crore share sale that ended on Thursday (September 10) was subscribed 31 times, with institutional investors making maximum bids, while retail investors, who were burnt in the past IPOs, such as NHPC and Adani Power, were less enthusiastic.

“OIL is offering shares at a valuation that translates into a EV/2P reserves (enterprise value divided by proven and probable reserves) of $4.1 compared to $5.4 for ONGC, $12.8 for Cairn and $7-8 for most international players,” said a note by brokerage house HDFC Securities to clients. For oil companies, the enterprise value to proven and probable reserves are used as a gauge for valuation. For manufacturing companies price-to-earnings multiple is used as a metric.

The institutional portion of the issue was subscribed 54 times, the non-institutional (mostly high net worth individuals and some corporates) nearly 11 times, with almost the entire bids coming on the last day, and the retail portion nearly two times. Oil India, the second company from the government stable to raise funds after NHPC since the Manmohan Singh government returned to power triggering reform hopes, invited bids in a price band of Rs 950-1,050. In unofficial trading, the so-called grey market, shares are trading at a premium of Rs 35- 40, some brokers, who did not want to be identified, said. The date of listing is still not known.

“Higher production of oil and gas, going forward, growing accretion to acreage, lower subsidy burden due to soft crude oil prices, high success ratio and operational efficiency, greater use of better technology (eg horizontal well technology), upsides from pipeline and downstream business, upside from likely revision in gas APM (administered price mechanism) prices, better financial and return ratios — all this could mean that the difference in valuation attracted by ONGC and OIL could narrow,” the HDFC Securities note said. Till Wednesday, most brokers were of the opinion that the retail portion may not be fully subscribed since their investments in NHPC and Adani Power have already eroded in value.

Earlier story: Oil India $570 million IPO oversubscribed 31 times
State-owned explorer Oil India's $570 million IPO was subscribed nearly 31 times on Thursday (September 10), quelling fears investor appetite for new offerings had waned in the wake of a tepid market debut for two recent big listings. Robust demand for Oil India's IPO also boosted hopes the government will look to sell more stakes in state firms as it looks to raise funds and cut a widening budget deficit. The 26.4 million share offering, priced at a discount to peers, was subscribed 30.81 times by 6:00 p.m. (1230 GMT) on the final day, according to the National Stock Exchange's website.

The portion of the IPO allotted to institutions was oversubscribed more than 50 times, with most bids coming at the higher end of the range of 950 to 1,050 rupees, a banker involved in the deal said. Oil India's IPO follows recent offerings from state hydropower producer NHPC and private utility Adani Power, which had together raised $1.9 billion.
Analysts say Oil India's strong fundamentals, bright long-term growth prospects and better record for discoveries over larger state-run rival Oil and Natural Gas Corp will draw investors to the company. "The valuations for Oil India are much cheaper than peers, and its exploration pipeline also looks better than ONGC," Sonam Udasi, vice president at BRICS Securities, said. "Even if the overall market is weak, we could see a strong listing. We think the shares could see a premium of 20 to 25 per cent on the listing day."

Oil India, which is primarily into exploration, development, production and transportation of crude oil and natural gas onshore in India, is also exploring crude oil and natural gas in Egypt, Gabon, Iran, Libya, Nigeria, Timor Leste and Yemen. The company's market value after the offering would be $4.8 to $5.3 billion based on the indicative price band, according to Macquarie analyst Jal Irani. JM Financial, Morgan Stanley India, Citigroup Global Markets India and HSBC Securities and Capital Markets are the lead managers to the Oil India issue. The IPO had been fully covered within 30 minutes of opening on Monday, three banking sources had told Reuters.

Source: Reuters / The Economic Times

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