Reliance Power IPO listing

Posted by: Manjeet Krpalani on February 11, 2008

The Bombay Stock Exchange was so bedecked, it almost looked like it was hosting a wedding. Instead, it was the listing of the initial public offering of Reliance Power, a greenfield power generation and distribution business headed by Anil Ambani, one of two brothers who between them run perhaps the largest businesses in India.

Giant boards with the Blue, red and white logo of Reliance Power stood on either side of a big brass bull, and a red carpet led up the stairs to the Exchange. Expensive orchids trimed the entrance canopy. Inside the round convention hall - once the pit of the exchange before it went electronic – there’s a large, heavily garlanded portrait of Dhirubhai Ambani, founder of the Reliance group of companies and Anil Ambani’s father. All the top investment bankers – from Kotak Mahindra to Deutche Bank to ICICI Securities to UBS – who had been given the IPO mandate were present, as were hordes of press, and several worthies of Bombay city.

At 9.30 am sharp, Ambani’s mother, Kokila, his wife Tina and his two sisters walked in, as bedecked as the Exchange. The listing is clearly a family affair – and shows the world that Ambani is supported in his ambitions by the extended family. Conspicuously missing is older brother Mukesh – bad blood between the two brothers separated the family business in 2004, and they’ve been apart since. Mukesh kept the cash-spewing petrochemicals business, and younger Anil got telecom, power and finance.

They’re both in a hurry to prove they’re just as formidable apart from each other. This is Anil Ambani’s first real attempt to raise megabucks, and his future ambitions depend on its success. He’s already got another IPO coming up, that of Reliance Tower, the cell tower business spun off from the telecom venture. So he was pumped up this morning. He talked about the 420,000 retail investors that Reliance Power had attracted and the 500 foreign investors, among others; the $190 billion in subscriptions that his $3 billion IPO had attracted. “It’s the power of India,” he said. But it’s really the power of Reliance and Ambani to make money on the markets for their investors that has drawn the crowds.

At 9.55 am precisely, Anil Ambani rang the gong and the Reliance Power share hit the market. It was quoted at the offer price of $11.50. A second after the listing, it moved up a millimeter, then began to sink. The people in the hall gathered by the giant screen and watched with astonishment as the numbers began to decrease. By 9.58 am, three minutes after the listing, the stock had dropped to about $10, and by the time the market closed on Feb 11th, the Reliance Power price was about $9.50, down 17%.

What a shock. The issue had been so hyped up, and the premium of $11.50 that investors had predicted the stock would fetch, seemed so possible. Of course, the Indian market was also down 8% by the end of the day, and analysts say it would naturally have affected the Reliance listing. But a lot has happened between Jan 4, when the Reliance Power IPO was announced, and Feb 11. The subprime crisis hit the US, a recession loomed and global markets swooned. India was not immune. And neither was Reliance, that unbeatable machine.

Market observers say the company will let the sellers sell, then start moving aggressively over the next couple of days to support the stock. Many expect it to move back to $11.50 levels soon.

Wait and watch. Reliance has never known to be defeated by the stock market – not yet.

Reader Comments

himanshu shah

February 11, 2008 11:52 AM

thats the good news for indian economy as small investors who depend on ipo s will turn back to there business or job helping to grow india by work not by speculation.I hope counting game for reichest indian must be stopped.

Murali Thoota

February 12, 2008 10:45 AM

Reliance Power is proposing to setup power plants; The gestation period in setting up such power plants is huge. The premium Reliance Power was expecting for its shares is too high. The valuations are too high. Sooner or later when the markets come to the reality, the shares should be beaten down.

People assume that the ‘Reliance’ brand carries lot of weight in the markets, and they would do well. But beware, markets is brutal. They will beat these stocks down when the total investor community releases how expensive our stocks are trading yet. The PE of Indian Sensex is almost double to that of Dow Jones Industrial Average. Is that sustainable?

I invested in Reliance Capital when it came for public issue in mid 1990’s. The stock went below the offer price and hovered at about 50% of issue price for over 4-5 years. Anil’s Reliance Power could be no exception. They have lot of cash on hand to do the business. But they wanted to raise the money; and show the world that he is no less compared to his brother who owns Reliance Industries.

Does Reliance Power fundamentally deserve such high multiples ?

and

February 12, 2008 2:43 PM

There is no doubt that Reliance Power will be big in future but i don't see that happing for another 5-6 years b/c they don't have any power plant operating right now and the land that they want to acquire is under dispute and i don't see them posting any profit until next 4-5 years but if you want to get into the Reliance power don't do it now but it will eventually go down around 200 Power is what India need for the growth therefore it will bounce back but you have to wait

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Bloomberg Businessweek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies.

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