Reliance Power slides at debut; kills IPO appetite

Mumbai: After being subscribed in less than a minute, shares of Reliance Power fell as much as 17 per cent on listing as global market turmoil took its toll by hitting investor demand.

According to data from the Bombay Stock Exchange and the National Stock Exchange, in the event it opened flat, rose briefly to Rs599.90, and then quickly sank to a low of Rs389. By the middle of the trading day at around 12.30 pm, it was down 9.3 per cent at Rs408. Chairman Anil Ambani rang the bell at the Bombay Stock Exchange at the start of trade on Monday, saying: "I'm confident our long-term investors will reap rich rewards by investing in the company."

What was expected to be a big bang, turned out to be a damp squib in the end, as the scrip which had initially been predicted to double on listing, actually slid 17 per cent, damaging the prospects for India's record pipeline of IPOs.

The company has no forecasts, no operational assets, only plans to set up around 28,000 megawatts of power projects. It saw its IPO over-subscribed by 73 times, despite analysts caution that it was unlikely to report positive earnings for the next five years. At Rs450, the offer price valued it at $30 billion. Analysts have said that Reliance Power had been overpriced, relative to India's top power producer NTPC Ltd, valued at over $42 billion, and trades at more than 21 times forward earnings.

Promoter Anil Ambani plans to use the money from the IPO to fund a $28 billion plan to build capacity. The company's IPO was priced at Rs450, or $11.4 a share. Analysts initially predicted Reliance to touch the Rs900 mark when it commenced trading. However, chaos at the stock market lowered investor risk appetite, and analysts predictions also came down to a start of Rs75 - Rs150 rupees above the IPO price being offered as a ''more realistic'' number.

Parent company Reliance Energy was downgraded by Morgan Stanley just a day prior to the listing of Reliance Power issue opening on 15 January, with the brokerage designating the company's generation business as overvalued. Reliance Energy itself was down 20 per cent today, as a rub – off of Reliance Power, and the general gloom in the markets.

Two initial public offerings, including that of Emaar MGF Land which was estimated at $1.6 billion, were postponed last week on account of the global credit crunch and worries about recession in the US. The other IPO to be pulled out was that of Wockhardt Hospitals Ltd.