Coal India Ltd., the world's largest coal company, announced Tuesday a $3.4 billion initial public offering that is India's largest-ever and adds to a growing list of record-breaking IPOs in Asia this year.
Foreign investors fleeing slow growth and low returns in the developed world have rushed into Asia, pumping up stock markets and snapping up shares in new offerings, which can more easily absorb large chunks of capital.
"There's a surge of liquidity created in the western world," said Naresh Kothari, president of Edelweiss Securities in Mumbai. "The belief in the recovery of their economies is not very high. A lot of this liquidity is looking for returns and the best growth is available in Asia and emerging markets."
So far this year, IPOs in Asia, excluding Japan, have totaled $100.5 billion, up from $36.9 billion in the same period last year. It's even topped the $59.1 billion raised in the same period of 2007 when share issues were booming.
According to Dealogic, China had the largest IPO in history in July, with the $22.1 billion offering of the Agricultural Bank of China Ltd. Singapore hit a new record high in October, with the launch of a $2.6 billion IPO for Global Logistic Properties Ltd.
South Korea notched its largest IPO ever in April, with the $4.4 billion offering of Samsung Life Insurance Co. Ltd. and the Philippines broke its record in October with the $537 million Cebu Air share sale.
The Indian government is selling 10 percent of its stake in state-run Coal India Ltd., part of a broad divestment plan to reduce the fiscal deficit and loosen state control over some of the nation's biggest companies. India aims to sell off pieces of state-run companies worth 400 billion rupees ($8.9 billion) this year.
Coal Minister Sriprakash Jaiswal said Tuesday that the government hopes to raise at least 150 billion rupees ($3.4 billion) from the Coal India IPO, setting a price band of 225 rupees to 245 rupees ($5.03 to $5.48) a share. The offering opens Oct. 18 and retail investors and employees will get a 5 percent discount.
That would top India's prior record, set by Reliance Power's $2.96 billion offering in 2008.
"Unlike the U.S., India doesn't have a printing press which it can use without impacting interest rates or inflation," said S. Subramanian, head of investment banking at Mumbai's Enam Securities. "It has to monetize some of its central assets."
Also in the pipeline this year are a $2 billion offering from the Power Grid Corp. of India and a $2 billion offering from the Steel Authority of India Ltd., Subramanian said. The government may also announce offerings of state oil giants Indian Oil Corp. and Oil & Natural Gas Corp., to help meet its target, he said.
The danger of this flurry of activity is that most liquidity-driven rallies aren't sustainable, Edelweiss' Kothari said. At some point, valuations overreach fundamentals and markets get flooded with new issues.
"We're seeing a lot of supply of paper and valuations not being cheap anymore in India," he said. "There's a possibility th
at when liquidity dries up things will correct."
While he said the Coal India offer price is "very attractive," retail participation in share offerings has slumped and many IPOs in India are listing at or below the offer price — both signs that a tipping point may be near.
Coal India has a near monopoly on coal sales in energy-hungry India, which counts on coal for 68 percent of its power generation, according to India's ICRA Ltd., an Indian ratings agency.
Last fiscal year, Coal India produced 431 million metric tons of coal, which was 82 percent of the country's total.
It controls about half — 53 billion metric tons — of the proven coal reserves in India, which has the world's fourth largest coal deposits.
Ernst & Young expects coal demand in India to grow 10 percent a year through fiscal year 2012.
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