Case Expectation: Essentially I am looking forward to a submission giving me details about your company's recent capital market fund raising instances by connecting it with what is taught in the class. For instance, - What was the process of fund raising (with an analysis of why they used this particular process than others)? Who were the key fund raising parties involved -like Lead Issuers, List of syndicate members, etc.? Dates and details of the capital market operation - like date of filing the prospectus, details of oversubscription, process of allocation, date of listing, etc? What could have been the rationale for the use of the particular financial instrument? And so on.
Disclaimer
The data presented in this paper is only for administrative and evaluation purposes and solely done by the Student of XLRI. This data should not be used for any other purposes other than evaluation of Student's ability to apply the concepts of Product and Brand management. Any usage of this material other than for the purposes mentioned above should be avoided.
Introduction
About the Company
NHPC Limited (Formerly known as National Hydroelectric Power Corporation Ltd.), A Govt. of India Enterprise, was incorporated in the year 1975 with an authorized capital of Rs. 2000 million and with an objective to plan, promote and organize an integrated and efficient development of hydroelectric power in all aspects, from concept to commissioning. Later on NHPC expanded its objects to include development of power in all its aspects through conventional and non-conventional sources in India and abroad. Today, NHPC supplies the much needed peaking power especially to the Northern and Eastern parts of the country.
NHPC has become a listed company on NSE & BSE with effect from 01.9.2009. At present, NHPC is a Mini Ratna Category-I Enterprise of the Govt. of India with an authorized share capital of Rs. 1,50,000 Million. NHPC has a market cap of Rs 36,000 crore, an investment base of over Rs. 387,180 Million and net worth of Rs 23,600 crore approx.
NHPC, till date, has executed 14 projects with an installed capacity of 5295 MW on ownership basis including projects taken up in joint venture. NHPC has also executed 5 projects with an installed capacity of 89.35 MW on turnkey basis. Two of these projects have been commissioned in neighboring countries i.e. Nepal and Bhutan.
Presently NHPC is engaged in the construction of 10 projects aggregating to a total installed capacity of 4502 MW. NHPC has added 1970 MW during the 10th Plan period and planned to add 5322 MW during 11th Plan period. Additionally 12 projects of 9651 MW are awaiting clearances or Govt. approval for their implementation. At the same time detailed projects report are being prepared for 7 projects of 2485 MW.
Financing Background Of the Company
Below is the financial result display of NHPC for last 10 years.
FINANCIAL
2009-10
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04
2002-03
2001-02
2000-01
Sales
**
4218.90
2671.85
2243.73
1754.12
1614.11
1449.98
1276.09
1172.23
1221.00
1179.90
Miscellaneous income
@
673.19
589.64
911.77
433.38
359.55
393.80
551.69
302.96
330.40
575.70
Profit before interest ,depreciation & tax
$
3892.41
2201.76
2201.93
1610.04
1454.71
1438.86
1477.37
1153.39
1183.50
1209.70
Profit after interest & depreciation
2402.08
1178.34
1146.65
1087.74
812.16
777.53
643.48
555.00
513.10
484.20
Profit after interest ,depreciation & tax
2090.50
1075.22
1004.09
924.80
742.75
684.58
621.38
510.50
470.90
443.40
Dividend
676.54
325.00
300.00
278.00
223.00
140.00
120.00
75.00
50.00
30.00
Reserves & surplus (cumulative)
10972.45
6798.13
6093.34
5367.05
4709.89
4168.49
3594.27
3065.70
2598.50
2139.10
WHAT CORPORATION OWNS
Gross Fixed Assets
21302.37
21460.08
20639.51
12943.64
12755.52
10876.28
10342.71
8280.95
8113.50
7892.70
Depreciation
4907.44
3816.27
3262.66
2850.92
2527.83
2148.20
1882.95
1672.19
1526.70
1280.10
Net Fixed Assets
16394.93
17643.81
17376.85
10092.72
10227.69
8728.08
8459.76
6608.76
6586.80
6612.60
Capital Work in progress
12802.50
9401.77
6318.64
11399.92
8844.19
8787.19
6975.83
7078.00
5218.30
3710.80
Construction Stores and Advances
1222.52
1096.85
1077.34
856.43
778.95
770.14
805.55
621.74
525.50
613.00
Investments
4394.05
2793.60
3049.22
3322.75
3832.81
3769.43
3660.87
2415.66
1965.00
679.90
Net Current Assets
3903.95
605.76
713.03
-345.60
-225.34
138.69
107.76
1889.77
1512.20
1864.20
Miscellaneous Expenditure not w/o.
-
2.33
0.34
25.80
24.55
1.18
0.71
1.20
2.00
9.80
38717.95
31544.12
28535.42
25352.02
23482.85
22194.71
20010.48
18615.13
15809.80
13490.30
WHAT CORPORATION OWES
Net Worth
-Share Capital
12300.74
11182.49
11182.49
11207.04
10576.09
9933.27
8629.03
7240.61
6345.70
5188.20
-Reserves
10972.45
6798.13
6093.34
5367.05
4709.89
4168.49
3594.27
3065.70
2598.50
2139.10
Income Received in advance
1437.44
1329.47
1303.26
1245.98
1030.18
1071.15
939.40
801.06
648.40
519.90
on account of Advance Against Depreciation
Borrowings
13868.22
12234.03
9956.33
7531.95
7166.69
7021.80
6847.78
7507.76
6217.20
5643.10
Deferred Tax Liability (Net)
139.10
-
-
-
-
-
-
-
-
-
38717.95
31544.12
28535.42
25352.02
23482.85
22194.71
20010.48
18615.13
15809.80
13490.30
OPERATING PERFORMANCE
2009-10
2008-2009
2007-2008
2006-2007
2005-2006
2004-2005
2003-2004
2002-2003
2001-2002
2000-2001
Generation (M.U.)
16960
16689
14813
13049
12567
11286
11046
9863
8912
8774
Machine availability (%)
84.10
93.61
96.13
94.11
98.16
95.30
96.82
96.62
96.86
92.09
Sales (Rs.in crore)
4218.90
2671.85
2243.73
1754.12
1614.11
1449.98
1276.09
1172.23
1221.00
1179.90
Man power (Nos.)
11712
12028
12341
12768
13118
13470
13648
13017
13054
11850
** Sales are net after tariff adjustment and Advance Against Depreciation
@ Includes receipts against contracts
$ After prior period adjustments
Because of the nature of its business, NHPC has huge sum of money locked in its fixed assets and work in progress. There are many projects that have been running in parallel from quite some time. Some of them has over soot its deadline and budget. Return from these projects will only be possible once they are commissioned. Hence there is always growing need of money by NHPC.
The company has been doing equity and debt financing all these years in order to meet the project requirements. However, percentage of borrowings compared to equity was on steady rise for some time until last year. Included below are some key financial ratios:
Until 2007 the company has been taking support from Government of India to meet all its equity requirements. From Apr. 2007 it consciously decided to reduce taking support from the government. In 2008 they filed the Red Herring Prospectus with SEBI but they backed out even after approval due to volatile market condition. Finally in August, 2009 they went public and got listed in BSE and NSE stock exchange on September 1st 2009.
Initial Public Offering (IPO)
The company launched its IPO (Initial Public Offer) on 7th of August, 2009. This issue comprised of 1,11,82,49,343 fresh equity share of NHPC Ltd. in addition to the sale of 55,91,24,672 shares by the government of India making a total of 1677374015 shares. Out of this it reserved 4,19,34,350 shares for its employee and reaming 1635439665 was issued to the public. It fixed the price band of Rs. 30 to 36 for each equity share having a face value of Rs. 10. This issue constituted 13.64 percent of the post issue capital of NHPC.
Within 5 minutes of its launch it was fully subscribed and by the close of business it was more then 3 times subscribed. Eventually it was oversubscribed by almost 24 times by the close of IPO on 12th Aug.
After successful conclusion of its IPO, NHPC became a listed company on both NSE & BSE with effect from 1st Sept 2009. The Company raised Rs 6038.55 crore through its IPO out of which Rs 4025.70 crore is available against sale proceeds of 10 percent fresh equity.
Objectives
Objective of this project is the study of IPO issued by NHPC Ltd. in 2009 on the basis of what was thought in the class of Financial Markets and Banking subject of PGCBM-17 Batch.
Methodology
Here case analysis is made by collecting secondary data from different places. Secondary data's are pre published and research data's collected from different websites, newspapers, company website, research papers etc.
Study Material and Notes
NHPC website.
Corporate Report.
Red Herring Prospectus submitted to SEBI.
Various News and financial websites.
Analysis
Need for IPO
NHPC Limited since its inception has been getting equity financed by Government of India alone. From 13th Aug 1976 until 13th March 2007 a total of 10,88,15,420 shares having face value of 1000 Rs. were issued. On 13th March 2007 itself all these issues were split into Equity Share of face value of Rs. 10 each. With additional issue of 316670500 shares on 26th March total share with Government of India became 111982125000.
In May 2007 NHPC closed Koel Karo hydroelectric project in the state of Jharkhand which reduced its equity by 245500000 Rs. and effectively the number of share left was 11173662500. Again after around a year time NHPC issued 8830930 shares of Rs 10 to the Government of India in March 2008. This was the last time NHPC took government grand before going public and till date. Before IPO, Government of India was holding a total of 11,18,24,93,430 shares of NHPC Ltd having a total equity of Rs. 11182.49 Crore.
Apart from equity financing by GOI, NHPC also took many secured and unsecured loans from various institutes during this period. Its secured loans constitute of bonds and Term Loans from banks and other Financial Institutes. Details of the same have been provided below:
Bond:
Bond Series
Loan amount as on
March 31, 2009
Security
Mortgaged
Interest
Rate (%)
Repayment terms
15 year Bonds of
Rs.100,000,000/- each 513.00 * 2 7.70
Yearly redemption of RS
57 Crs. w.e.f. 31.03.09
(O-Series, Private
Placement)
513.00
Secured by pari-passu charge by way of Equitable mortgage/hypothecation against Immovable/Moveable
assets of Corporation's Uri -I Power Station situated in the state of Jammu & Kashmir except for book
debts and stores.
7.70
Yearly redemption of RS
57 Crs. With effect from. 31.03.09
Secured Term Loan from Banks:
Secured by pari-passu charge by way of Equitable mortgage/hypothecation against Immovable/Moveable assets of Corporation's Chamera Power Station-I situated in the state of HP except for Book Debts and Stores.
Secured by pari-passu charge by way of Equitable mortgage/hypothecation against Immovable/Moveable assets of Corporation's Uri -I Power Station situated in the state of Jammu & Kashmir except for book debts and stores.
Secured by pari-passu charge by way of Equitable mortgage/ hypothecation against Immovable / Moveable assets of Corporation's Chamera Power Station-II situated in the state of HP except book debts & stores.
Secured by exclusive charge by way of equitable mortgage/hypothecation against the assets of Company's Loktak Power Station situated in the state of Manipur except for book debts and stores.
Secured by a first charge by way of first mortgage and hypothecation against the immovable and moveable assets of the Company's Parbati HE Project-II situated in the state of HP. 196
Secured by the hypothecation of the moveable assets of the Corporation's Subansiri Lower H.E.Project situated in the state of Arunachal Pradesh & equitable mortgage/hypothecation against immovable/movable assets of Corporations Teesta Low Dam-III Project situated in the state of West Bengal and Teesta V H.E. Projects situated in the State of Sikkim.
Secured by a first pari-passu mortgage and charge over all the immoveable and moveable assets of the Company's Dhauliganga Power Station situated in the state of Uttrakhand except for book debts & stores.
Secured by way of first charge by way of hypothecation on whole of the Corporation's movable assets, both present and future, of Dulhasti Power Station situated in the state of Jammu & Kashmir except for book debts & stores.
Unsecured loans taken by NHPC prior to filing IPO were as fallows:
Total of secured and unsecured loan by March 2009 was equal to 12234.03 crore Rs. which was way more then the share capital for the same period. Below is the complete list of Borrowings and Share capital from 2000 onwards until last year.
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04
2002-03
2001-02
2000-01
Share Capital
11182.49
11182.49
11207.04
10576.09
9933.27
8629.03
7240.61
6345.70
5188.20
Borrowings
12234.03
9956.33
7531.95
7166.69
7021.80
6847.78
7507.76
6217.20
5643.10
Chart for net worth v/s borrowing taken from the company's website illustrates the same thing.
From the chart above what we can see is that when NHPC started reducing the equity financing its borrowing started going up. During this period company had to look for other sources of fund to finance its projects. Following are the list of projects which needed more financing; some were getting delayed as well:
Identified Project
Location
Generating
Plant
Capacity
(MW)
Original Date
of Completion
(as per CCEA
Sanction)
Estimated Date of
Completion
(as per
Management
Estimates)
Subansiri Lower
Arunachal Pradesh
2,000 (8 x 250)
September, 2010
December, 2012
Uri II
Jammu & Kashmir
240 (4 x 60)
November, 2009
February, 2011
Chamera III
Himachal Pradesh
231 (3 x 77)
August, 2010
August, 2010
Parbati III
Himachal Pradesh
520 (4 x 130)
November, 2010
November, 2010
Nimoo Bazgo
Jammu & Kashmir
45 (3 x 15)
August, 2010
August, 2010
Chutak
Jammu & Kashmir
44 (4 x 11)
February, 2011
February, 2011
Teesta Low Dam IV
West Bengal
160 (4 x 40)
September, 2009
August, 2011
In order to meet its growing need for money it realized that it just could not depend on debt financing and thus had to go public by Sept. 2009.
Initial Public Offering In Depth
NHPC had earlier filed the Draft Red Herring Prospectus (DRHP) in April 2007, but it was turned down by Sebi, as the company did not have the required strength of independent directors on its board then. Later, the company re-filed on August 6, 2008, but could not launch the IPO due to poor market conditions. It was re-revised and final version was prepared on 26 Jul 2009 before the release of IPO in Aug. 2009.
At the time of issue, company had a total of 49 internal and 8 external risk factors noted in its offering. However, amount involved in most of them was quite small as compared to the size and net worth of the company. Due to it's over all average fundaments, Its IPO was assigned a grade of 3 in scare of 5 by ICRA, where 1 is minimum and 5 is maximum IPO Grade.
This issue comprised of 1,11,82,49,343 fresh equity share of NHPC Ltd. in addition to the sale of 55,91,24,672 shares by the government of India (selling share holder) making a total of 1677374015 shares. In terms of total percentages it was 13.64% of total shares available after the issue. Since the percentage of issue was less then 25%, In terms of Rule 19(2) (b) of the SCRR, the Issue was to be made through the 100% Book Building Process. Issue details were as follows:
As can be seen, the entire issue was divided into 4 categories of Investors. In terms of percentages 2.5% of the total issue was reserved for NHPC employees and reaming shares were divided among Qualified Institutional Buyers, Non-Institutional Bidders and Retail Individual Bidders in proportion of 60:10:30.
In each category the minimum size of bid was fixed at 175 shares having a value of Rs 1750. Also, every bid was also fixed to be in multiple of 175 shares. Retail investors could only bid for maximum of 1 Lakhs beyond which they would fall in the category of Non-Institutional bidders and would be considered under that corresponding category. Minimum value for QIB's was also fixed at 1Lakhs.
Domestic Legal Advisor was Amarchand & Mangaldas & Suresh A. Shroff & Co. and International Legal Counsel was Dorsey & Whitney (Europe) LLP for this issue.
Book Running Lead Managers for this issue were Enam Securities Private Limited, Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited, who did the due diligence on the issue. List of activities, responsibility and co-coordinator for the same is provided below:
Activities
Responsibility
Co-ordinator
Capital structuring with the relative components and formalities such as type of instruments, etc.
Enam, Kotak and
SBI CAPS
Enam
Due diligence of the Company's operations/management/business plans/legal, etc. Drafting and designing of the offer document and of statutory advertisements including memorandum containing salient features of the Prospectus. The
BRLMs shall ensure compliance with stipulated requirements and completion of prescribed formalities
With the Stock Exchanges and SEBI including finalization of the Prospectus and filing with the Registrar of Companies and Stock Exchanges.
Enam, Kotak and
SBI CAPS
Enam
Drafting and approving of all publicity material other than statutory advertisements as mentioned above
Including corporate advertisement and brochure.
Enam, Kotak and
SBI CAPS
SBI CAPS
Appointing other Intermediaries:
(A) Printers;
(B) Registrar;
(C) Advertising Agency; and
(D) Bankers to the Issue.
Enam, Kotak and
SBI CAPS
Printers: Enam
Registrar: Kotak
Advertising Agency: SBI CAPS
Bankers to the Issue: Kotak
International institutional marketing strategy, preparation of road show marketing presentation, FAQ and co-ordination for all road show logistics.
> Finalizing the list and division of investors for one on one meeting, institutional allocation.
Enam, Kotak and
SBI CAPS
SBI CAPS
Retail/Non-institutional marketing strategy which will cover, inter alia,
> Finalising media, marketing and public relation strategy,
> Finalising centres for holding conferences for brokers, etc.,
> Finalising collection centres,
> Following up on distribution of publicity and Issue material including application forms, Prospectus and deciding on the quantum of the Issue material,
> Domestic institutions/banks/mutual funds marketing strategy, and
> Finalising the list and division of investors for one on one meetings, institutional allocation.
Enam, Kotak and
SBI CAPS
SBI CAPS
Managing the book, coordinating with Stock Exchanges, pricing and allocation to the QIB Bidders
Enam, Kotak and
SBI CAPS
SBI CAPS
Post bidding activities including managing of Escrow Accounts, co-ordinating non-institutional allocation, intimating allocation and dispatching of refunds to the Bidders.
Enam, Kotak and
SBI CAPS
Kotak
The post issue activities of the Issue will involve essential follow up steps, which include finalizing of trading and dealing instruments and dispatching of certificates and demat delivery of shares, with the various agencies connected with the work such as Registrars to the Issue, Bankers to the Issue and the bank
handling the refunds business. The BRLMs shall be responsible for ensuring that these agencies fulfil their functions and enable them to discharge this responsibility through suitable agreements with the
Company
Enam, Kotak and
SBI CAPS
Kotak
Kotak Securities Limited and SBICAP Securities Limited were the member of syndicate for this IPO. Underwriter for the entire IPO, the number of shares under written and the amount for the same was as fallows:
Name of the Underwriters
Indicative Number of
Equity Shares to be
Underwritten
Amount Underwritten
(Rs. in crore)
Enam Securities Private Limited
55,91,24,672
2,012.85
Kotak Mahindra Capital Company Limited
55,91,24,572
2,012.85
SBI Capital Markets Limited
55,91,24,571
2,012.85
Kotak Securities Limited
100
0.0004
SBICAP Securities Limited
100
0.0004
Total
167,73,74,015
6,038.55
To keep record of issue and ownership of NHPC's shares, processing all the application, allocate shares to applicants, process refunds and transfer allocated shares to investors demat accounts, Karvy Computershare Private Limited, which has handled over 675 issues as registrar and serving over 16 million investors from multiple locations across India, was made the Registrar to the Issue for this IPO.
Apart from this, following Bankers to the Issue were also identified for this purpose:
ICICI Bank Limited
IDBI Bank Limited
Punjab National Bank
Deutsche Bank AG
The Hongkong and Shanghai Banking Corporation Limited
Yes Bank Limited
ABN Amro Bank N.V.
HDFC Bank Limited
Axis Bank Limited
Kotak Mahindra Bank Limited
State Bank of India
Standard Chartered Bank
Additionally, for this issue, IDBI Limited was identified as Monitoring Agency, M/s. GSA & Associates were appointed as Auditors and ICRA Limited was fixed as IPO Grading Agency in this regard. Also, as the issue was for equity share, credit rating and the appointment of trustees were not needed.
As a part of book building process, price band for this IPO was fixed as between Rs. 30 to Rs. 36 per equity share of face value Rs. 10 each. Floor price being 3 times that of the face value and the cap price was 3.6 times of the face value for these shares.
Planed Opening and Closed Date for this IPO:
BID/ISSUE OPENING DATE
August 7, 2009
BID/ISSUE CLOSING DATE
August 12, 2009
Post IPO Analysis
As planed, IPO of NHPC Ltd opened on August 7th 2009. Within 5 minutes of its launch it was fully subscribed and by the close of business it was more then 3 times subscribed. At the end of the day, the issue had received 594.09 crore shares, according to data available on the NSE.
Category
Oversubscription
Qualified Institutional Buyers
6.0057
Non Institutional Investors
0.0062
Retail Individual Investors
0.0952
Employee Reservation
0.0002
Numbers as at 7th August 2009 from NSE's Website
Eventually it was oversubscribed by almost 24 times by the close of IPO on 12th Aug. It has received bids for more than 3,981 crore shares as against the issue size of 167.73 crore shares. The issue had overwhelming response from all categories of investors. Qualified institutional investors (QIBs) were the major supportive investors with their portion being subscribed 29.16 times. Non-institutional and retail investors' portion subscribed 26.7 times and 3.87 times, respectively.
On 24th of Aug. 2009 allotment was done for the NHPC's shares. Of the 13.02 lakh retail applicants who had applied, 10.74 lakh have been allotted shares. Those who applied for up to 525 shares received shares on a lottery basis. Applications for 700-2625 shares have been given firm allotment (where shares will definitely be allotted). In the employees category a total of 56% was bought, remaining shares were allotted in the proportion of 60:10:30 to QIBs/HNI/retail.
The issue price was fixed at Rs 36, at higher end of the price band. The company in total garnered Rs 6,038.55 crore from the issue; out of which, the government received Rs 2,012.85 crore. Refund for those who could not be allotted any shares of NHPC was initiated on the next day itself. 25th of August 2009.
After IPO and before listing, different financial analysts in general were anticipating about the share being listed in the price range between 40 to 50 Rs. However, as only about half of the shares available in employee's category were subscribed, they knew that shares price would fall as soon as it will get listed. NHPC informed in a circular that was sent to BSE and NSE that the stock will be listed in the market on September 1st 2009.
On 1st September 2009, shares of NHPC got listed at both NSE and BSE stock exchanges under 'B' group of securities. In NSE it opened at a price of Rs 42 where as in BSE it opened at Rs. 39 on that day. And as was the expectation, people started selling immediately and price came down near to the issue price of 36 and was traded at that price all day long. On next day it even went below that level but resurfaced after. Below is the graph taken from money.sulekha.com showing price fluctuation during the whole of September, 2009.
Current situation
Entire history of share price of NHPC is shown in the graph below:
Current market price for NHPC shares are prevailing at around Rs. 30 per share. Even though there is a loss of around Rs. 6 per share, from long term investment point of view they are good as we know that company will be finishing off many of its current running projects some time in near future.
Also when we look at the company's performance for the last year, that is, financial year 2009-10, the company achieved highest ever Net Profit after Tax of Rs 2,090.50 crore which is 94.43% higher than the net profit after Tax of Rs. 1,075.22 crore earned during 2008-09. At the same time it achieved an all time high sales turnover of Rs 4,218.90 crore which is 57.90% higher than the last year sales turnover of Rs 2,671.85 crore. Also, all time high sales of Rs 3,603.93 crore was realized, which is 48.90% more than the previous year's realization of Rs 2,420.36 crore. Below is the sales vs profit graph displayed on company's website for various years:
This is a very positive sign as this shows that in near future profit from the companies finished projects would become strong enough to sustain its operations to a large extent also providing larger dividends to its shareholders would be possible.
Conclusion
NHPC's IPO was the biggest IPO in terms of share volume. However, the valuation of its share was done on the higher side leaving very less margin for small short term investors.
From the companies point of view also, huge need for money is always there due to the nature of its business. But until and unless it starts ripping benefit out of its completed projects to meet its future demand to a large extent, it would be difficult to keep lifting cash from market and further borrowings.
It has option to go for secondary public offering and follow up public offering to raise further capital. However, share prices could not be kept that high.
