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Bharti Infratel IPO: Why retail investors kept away

By Rajesh Pandathil

The primary market in India is teetering. Retail investors are yet to get their confidence back. Bharti Infratel's almost-flop IPO is another proof of this.

The telecoms tower arm of Bharti Enterprises wanted to raise up to $830 million through an issue of about 160 million shares at an indicative price range of Rs 210-240 per share.

The IPO was subscribed just 1.3 times. Retail investors' participation was tepid with the retail portion getting a mere 19 percent subscription bids, according to a Business Standard report.

The issue has not seen much interest from retail investors. Reuters

Even high net worth individuals did not evince much interest. Their subscription stood at just 29 percent, the report said.

Qualified institutional buyers' subscription at 2.84 times was the only saving grace.

But what is holding back the retail investors?

The report quotes market experts as saying that the debacle of 2008 Reliance Power IPO was still fresh in the public memory. They are afraid that "there won't be much left for them on the table", the report said.

Earlier, the PC Jeweller IPO was oversubscribed 6.79 times. The retail investors' portion got 62 percent bids, according to a PTI report.

QIBs subscribed 5.24 times, while non-institutional investors bid 2.97 times.

As far as CARE IPO is concerned, the subscription was 41 times.

A report in Mint quoted analysts as saying that a huge oversubscription does not necessarily indicate a turnaround in the primary market.

Reacting to CARE subscription numbers, Sandip Sabharwal, chief executive officer of portfolio management services at Prabhudas Lilladher Pvt. Ltd, told Mint that it indicated investors would lap up quality issues.

"I do not think this could mean a revival of the IPO market. It is still a wait-and-watch situation," he was quoted as saying in a report.

Bharti Infratel IPO has to be viewed against this background.

An earlier article in Firstpost had listed reasons to not subscribe for the Bharti Infratel IPO and had said the offer document has not disclosed the history and track record of the promoter.

"The over-confident merchant bankers argue that since Bharti Airtel is a listed company and its details are already in the public domain they did not deem fit to include in the issue prospectus. But, do the novices presently occupying the merchant bankers' chairs know how many times did the promoters de-merge and re-arrange their businesses since they went public in 1986, and who benefited the most out of the perennial restructuring?," the article said.

"When the flagship Bharti Airtel's prospects are sagging, its subsidiary Bharti Infratel (BIL) is now being used to raise funds," it argued.

Another catch is the valuation. The parent is currently discounted about 20 times its earnings. In comparison, Bharti Infratel is priced more than 48 times its earnings even at the lower end of the price band.

If the company had expected that investors will make a beeline for the shares at this valuation, it is in a fool's paradise.

Given the turbulent phase the telecom sector in India is going through, it would have been a surprise if the issue elicited a better response.

According to a Reuters report, the IPO could be priced around 230 rupees per share, at the level it agreed to allot shares to anchor investors in the pre-IPO sale.

The company's board will meet soon to take a decision on the final price, the report said.

by Rajesh Pandathil

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