Anil Ambani’s Reliance Power will offer 10.1% stake - or 114 crore shares — to the public through an IPO that is billed to raise about Rs 7,000 crore.
Values firm at around Rs 61,000 crore
Vishal Chhabria & Satish John
MUMBAI: Anil Ambani’s Reliance Power will offer 10.1% stake - or 114 crore shares — to the public through an initial public offering (IPO) that is billed to raise about Rs 7,000 crore, making it the second-largest IPO in India.
The record for the largest is held by realty giant DLF, which had raised Rs 9,187 crore.
The promoters themselves will subscribe to 1.4%, or 16 crore, shares of the issue.
According to DNA Money estimates, this sale will be tantamount to a valuation of Rs 61,000 crore for Reliance Power.
Roughly Rs 7,000 crore is being raised through 130 crore shares, which translates into Rs 54 per Reliance Power share.
This means, Reliance Energy’s holding of 508 crore shares in Reliance Power, post issue, will be valued at Rs 27,432 crore.
Considering Reliance Energy’s diluted equity of 23 crore shares, the value of its holding in Reliance Power works out to Rs 1,183 per share.
Shirish Rane and Bhoomika Nair of brokerage house SSKI had, in a report on October 1, estimated the value of Reliance Energy without Reliance Power at Rs 869 per share.
Combining the two takes Reliance Energy’s valuation soaring to Rs 2,052 per share. The share closed around Rs 1,450 on Wednesday, up 7.5%.
Reliance Power aims to raise a minimum of Rs 6,148.31 crore through the IPO. Given that some more funds will be required to meet general corporate and IPO expenses, the total IPO proceeds should hence work out to around Rs 7,000 crore.
Add to that the Rs 76,500 crore that will be required (over few years) in the form of debt to fund the 12 projects, the enterprise value of Reliance Power works out to Rs 1,37,500 crore.
Rel Power lines up Rs 7,000 crore IPO
The Anil Ambani group intends Reliance Power to be its primary vehicle for investments in the power generation sector in the future.
It is planned to generate generate 24,200 mw through 12 projects, which the company touted in the prospectus as one of the “largest portfolios of power generation assets under development.”
In a draft red herring prospectus filed with Sebi, Reliance Power, owned equally by Reliance Energy and AAA Project (a holding company of Anil Ambani’s R-ADAG), will have, post-IPO, a holding equity pattern of 44.9% each between Reliance
Energy and AAA Project, with the balance 10.1% held by the public.
The net issue to the public in the IPO would be 114 crore shares of Rs 2 each.
The two promoters have committed to subscribe about 8 crore shares each (total 16 crore shares) in the IPO, by way of promoters’ contribution at the IPO price.
In June 2007, AAA Project was allotted about 50 crore shares at Rs 10 each (at par).
Each share of Reliance Power (of Rs 10 paid-up) was subsequently sub-divided into five shares of Rs 2 each in September.
Reliance Power has the largest power portfolio of power generation projects under development in the country.
This includes the 3,960 mw coal-fired ultra-mega power project in Sasan, and the 7,480 mw gaas-fired project at Dadri in Uttar Pradesh, which is billed as one of the largest gas fired project in a single location.
According to the prospectus, the company will have to raise Rs 25,431.20 crore, in addition to the proposed IPO, to fund the balance of costs for the identified projects. The draft also said the company has mandated bankers to raise about $6 billion in syndicated loans on secured basis for identified projects.
It further said about 20% of the projects will be funded through contributions from Reliance Power and the balance 80% through third-party debt.
For Reliance ADA Group, this will be the first public offering since the group was formed two years ago when the Reliance group was split between Mukesh Ambani, who controls Reliance Industries, and brother Anil.
The issue will be managed by UBS, ABN Amro, JPMorgan, Deutsche Equities, Enam securities and Kotak Mahindra Capital, while Macquarie India and SBI Capital Markets would be co-managers, the statement said.
Rel Power vs NTPC
Comparing Reliance Power with NTPC, India’s largest and most-efficient power generating company, makes for interesting reading.
NTPC has about 28,000 mw of power generating capacity already operational (besides, coal blocks, etc for future projects), and is currently valued at Rs 206,000 crore (market capitalisation of Rs 179,000 crore plus debt of Rs 27,019 crore as on March 30, 2007).
Importantly, NTPC is setting up projects with a combined capacity of 22,600 mw (13,360 mw already under execution) to be operational by 2012, at a time when Reliance Power’s power capacities should hopefully have become operational.
What’s also interesting is that NTPC currently generates a cash profit (net profit plus depreciation) of over Rs 9,000 crore annually.
The company, in its 2006-07 annual report said that all the planned capacity addition programs shall be financed with a debt to equity ratio of 70:30 and that it believes that internal accruals would be sufficient to finance the equity portion of the investments.
Assuming an approx total cost of Rs 88,000 crore at Rs 4 per mw, NTPC’s equity contribution would be under Rs 27,000 crore, which should not be an issue given the cash profits and also, current low debt:equity of 0.50 times.
By then (2012), NTPC would be boasting of a total capacity of over 50,000 mw, more than double of Reliance Power.
So is it a case of Reliance Power asking for too much or NTPC being grossly undervalued?
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