May 5, 2017 8:58 pm JST

India's first infrastructure investment trust IPO draws strong demand

MUMBAI (NewsRise) -- The $668 million initial public offering of IRB InvIT Fund, India's first-ever infrastructure investment trust, drew a reasonably strong demand from investors amid hopes of a boom in spending to improve the south Asian nation's roads, railways and ports.

The IPO, which was oversubscribed more than eight times, comes at a time when India is gearing up to spend a record $59 billion on infrastructure projects this year. The trust allows investors to benefit from rental yield and price appreciation of various infrastructure assets, without actually owning them. Investors may get returns in the form of regular dividends, interest or buyback of units.

Still, the fund's subscription paled against some recent IPOs. Supermarket chain operator Avenue Supermarts in March drew bids for more than 100 times the shares it offered. The total value of bids placed by institutions in Avenue's IPO exceeded their equity investments in all of 2016.

The IPO of IRB InvIT Funds, backed by IRB Infrastructure Developers Ltd., received bids for about 2.12 billion shares, or 8.44 times the nearly 251 million shares on offer, according to provisional data on the National Stock Exchange. The company had set a price band of 100 rupees ($1.55) to 102 rupees a share for the offering.

Ahead of the offer, the trust raised 20.95 billion rupees from anchor investors, including the government of Singapore and Deutsche Global Infrastructure Fund.

Analysts say the successful listing of the trust will create a new platform for investors.

"We view the launch of IRB's InvIT as a big boost for the infrastructure sector," Phillip Capital said in a note last month. "The successful listing of this InvIT will pave the way for many similar listings, and help the sector discover a new source of capital other than equity and debt."

The IPO comes soon after India's capital markets regulator eased regulations governing the sector in a bid to attract more investments. A number of infrastructure companies are looking to list their investment trusts, including billionaire Anil Ambani's Reliance Infrastructure.

The trust's IPO comes at an enterprise value of 59.24 billion rupees, a 16% discount to the independent valuation it mentioned in the prospectus. Analysts say a delayed listing would have fetched the company a better valuation.

The lower valuation "is a price the company has to pay for the being the first one to launch a new instrument," Phillip Capital said. "The listing valuations are at only a 10% discount to our valuation, and with the benefits of upfront cash and lower leverage, we still see the deal as a good bargain."

India's stock market hit a record high last week on the back of strong company earnings. The IPO market too has been booming in the past one year.

Indian companies raised as much as $4 billion through such share sales last year, roughly 85% more from a year earlier, making it the best in six years, according to data from Thomson Reuters.

--Dhanya Ann Thoppil

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