Reliance Power slumps on debut; IPO appetite dulled

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AGGRESSIVE PRICING

The issue, managed by Kotak Mahindra Capital Co, UBS, ABN AMRO, Deutsche Equities, Enam Securities, ICICI Securities, JM Financial and JPMorgan, had been helped by the Ambani family name.

There are no forecasts for the company as it does not have any operational assets, but plans to set up about 28,000 megawatts of power projects.

The utility saw its IPO subscribed 73 times, even though analysts said it was unlikely to report strong profits for five years. The Rs.450 offer price valued it at $30 billion.

But since the offer closed, market conditions have deteriorated and the benchmark index has lost about 22 percent from an all-time high of 21,206.77 hit on Jan. 10.

Analysts said Reliance Power had been overpriced relative to India's top power producer NTPC Ltd, which is valued at more than $42 billion and trades at more than 21 times forward earnings.

"In this kind of a market you are better off investing in companies based on their earnings potential than in those whose valuations depend on their future stock movements," said Nilesh Jasani, head of research at Credit Suisse.

ALARM BELLS

Warning signs came last week when Wockhardt Hospitals Ltd and then Emaar MGF, the Indian joint venture of Dubai's Emaar Properties, pulled their IPOs due to poor response and worries the shares would fall on their debuts.

Until then, India had a record IPO pipeline of $15.8 billion for 2008, according to Thomson Financial. Government-run State Bank of India plans a $4.2 billion rights issue soon.

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