Reliance Power Drops on Bombay Stock Exchange Debut

Reliance Power Ltd., the company that raised $3 billion in India's biggest initial public offering, fell as much as 21 percent on debut as a global equities sell-off dried up appetite for new shares.

The unit of Reliance Energy Ltd., controlled by billionaire Anil Ambani, fell to 355.05 rupees on the Bombay Stock Exchange, from the 450 rupees at which the stock was sold in the IPO last month. The stock closed 17 percent lower at 372.5 rupees.

Indian stocks have tumbled 5.8 percent so far this month, amid a global rout, prompting companies to scrap $1.8 billion of share sales. Investors sought $189 billion worth of Reliance Power shares, betting it will benefit from India's $200 billion plan to provide electricity to a growing industry and more than 400 million people without access to power.

``There seems to be some kind of a panic out there, it's got to do with the broader market,'' said Viswanathan Vasudevan, who manages about $300 million at Aquarius Investment Advisors Pte in Singapore. ``Reliance's projects have always been ambitious but they have the track record of delivering.''

Investors cast doubt on the scale of the nation's energy generation plans after the government said last week it expects growth to slow for the first time in three years and announced an unexpected rise in inflation. That may discourage the central bank from cutting interest rates and companies from making the investments needed for growth.

`Just Too Rich'

``If you look at Reliance Power, I would say valuations were just too rich,'' said P. Phani Sekhar, who manages $25 million at Angel Broking Ltd. ``The valuations have gone beyond themselves. This should have been the valuation five years later.''

Indian utilities on average generate 14 percent return on equity, according to Sekhar. Transmission losses are high and regulators are reluctant to allow higher tariffs, he said.

``Even if investors discounted possible delays in executing projects, they cannot make enough to justify valuations through generation, their core business,'' Sekhar said.

Morgan Stanley downgraded its rating on Reliance Energy last month, saying its generation unit was overvalued. The bank valued Reliance Power at $11.85 billion, compared with the parent's valuation of $23 billion to $25 billion for the unit, Mumbai-based analysts Parag Gupta and Saumya Srivastav said Jan. 14.

Reliance Power sold 260 million shares at 405 rupees to 450 rupees apiece. Ambani plans to set up 13 plants with 28,200 megawatts of generating capacity over five years, a third of India's planned new projects. Ambani, who will use the money to fund his $28 billion plan, became the second-richest man in India after his Reliance Energy, India's second-biggest utility by market value, quadrupled in value last year.

Recession Concern

Reliance Power, 50 percent owned by Reliance Energy, received orders for 16.6 billion shares, the company said. ABN Amro Rothschild, Deutsche Bank AG, Enam Securities Pvt., ICICI Securities Ltd., JM Financial Consultants Pvt., JPMorgan Chase & Co., Kotak Mahindra Capital Co. and UBS AG arranged the Reliance Power IPO.

Stocks have tumbled globally on concern that the collapse of the U.S. subprime mortgage market will push the world's largest economy into a recession and slow global growth. Emaar MGF Land Ltd. and Wockhardt Hospitals Ltd. scrapped their initial share-sale offers in India last week after failing to sell enough shares.

India's key Sensitive Index, or Sensex, has dropped 18 percent this year, compared with a 47 percent increase last year. It fell 4.8 percent to 16,630.91 today.

Inflation, Growth

Reliance Energy fell to a 17-year low on Jan. 22 on concern the power unit would list below its IPO price because of slumping markets. Reliance Energy shares today fell 19 percent to 1,582.3, the biggest drop since May 2004.

India's inflation accelerated to 4.11 percent in the week ended Jan. 26, the highest in more than five months, the government said on Feb. 8. The central bank has kept borrowing costs at a five-year high to curb inflation, while the government has held off from raising fuel prices since June 2006.

India's economic growth may slow to 8.7 percent this year from 9.6 percent in the previous financial year, the government said on Feb. 7.

The nation plans to add 78,577 megawatts of capacity in the five years to March 2012 to help bridge a 13 percent shortfall in peak demand.

Anil Ambani has invested in a range of businesses since breaking with brother Mukesh in 2005 and the splitting of the Reliance Group of companies founded by father Dhirubhai Ambani, following an agreement mediated by their mother Kokilaben.

The younger brother's wealth more than tripled last year to $45 billion, according to Forbes magazine, putting him behind Mukesh, chairman of Reliance Industries Ltd. The Reliance Industries chairman's wealth was estimated at $49 billion in the Forbes November 2007 survey.

By Archana Chaudhary and Manash Goswami
Source : www.bloomberg.com