The Rs 4,500-crore public issue of Bharti Infratel, the largest since 2010, has been subscribed 1.3 times, but retail investors were lukewarm to the issue.
The tower arm of Bharti Airtel offered 160.56 million shares at a price band of Rs 210-Rs 240. But the retail category saw just 19 per cent subscription on the last day of book closure on Friday, despite the sweetener that the investors will get Rs 10 discount on the initial public offering (IPO) price. Agencies quoted sources as saying that Bharti Infratel could price the IPO at around Rs 230 a share, near the top-end of the indicative price range and at the level it agreed to allot shares to anchor investors in the pre-IPO sale.
High networth individuals (HNIs) were also lukewarm in their response as that category got just 29 per cent bids. What saved the day was encouraging response from qualified institutional buyers (QIBs) - the segment was subscribed 2.84 times.
Bharti Group chief Sunil Mittal was happy that the issue got a strong endorsement from QIBs. "We were hoping for it," he told reporters at an Indiamart event.
Market experts termed the poor response a setback for the primary market and said the debacle of the Reliance Power IPO in 2008 was still fresh in public memory - a factor that has kept most retail investors away from large issues, as the general feeling was there won't be much left on the table for them. Brokers were not extending margin funding for the issue as they doubted it would list at a substantial premium, which is why HNIs stayed away.
Bharti Infratel was demanding a valuation of 10-12 times enterprise value (EV) against its earnings before interest, taxes, depreciation and amortisation (Ebitda). This effectively is 45-50 times the price-earnings ratio (P/E) for financial year 2014
The company seems to have sensed the poor response from retail investors and HNIs in advance. That explains the company's decision to issue a corrigendum or notice to investors announcing a change in share allocation method to QIBs. Bharti had made the allocation of shares to QIBs open-ended. Earlier, it was mentioned in the prospectus that "not more than 50 per cent shall be available for QIBs".
One of Bharti Infratel's book managers attributed the poor retail participation to squeezing of liquidity by the IPOs of CARE Ratings and P C Jeweller, that hit the market ahead of the tower company's share sale.
Another banker to the Bharti issue said the company's business model was similar to those of listed tower companies in the US, and foreign institutional investors understood it better.