The Wall Street Journal-20080212-India-s Star Stock Nose-Dives
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India's Star Stock Nose-Dives
Full Text (627 words)India's Reliance Power Ltd. -- whose initial public offering was the biggest and most-hyped in the world this year -- plummeted on its first day of trading, exacerbating India's stock-market downturn and dealing a rare setback to the nation's richest and most powerful industrial family.
Shares in the power-generation start-up company closed at 372.50 rupees ($9.40) each, 17% below the price of 450 rupees at which many investors purchased shares last month. There had been widespread expectations that the stock might double on its debut, but investors in India have turned negative in the weeks since the IPO.
"Nobody expected a listing below the issue price, let alone for the stock to close below the issue price," said Deven Choksey, managing director at K.R. Choksey Securities in Mumbai.
Reliance Power is the latest stock-market offering from the Ambani family, which controls the Reliance group of companies. Two brothers, Mukesh and Anil, run separate parts of the empire founded by their father, which spans telecommunications, oil refining, energy and retail, among other interests. Listing several of their holdings on the Bombay Stock Exchange over the past several years has propelled the two brothers into the ranks of the world's richest.
Reliance Power, part of the Anil Dhirubhai Ambani Group, raised 117 billion rupees ($3 billion) from the stock offering. It is a small part of that company but had attracted massive interest because of the Ambani and Reliance brands.
Reliance Power's performance served to further damp sentiment in a market reeling from the cancellation of two big IPOs and worsening conditions elsewhere. India's benchmark index, the Sensex, fell 4.8% to 16630.91, putting it down 18% for the year. The Reliance issue also hurt other power-company stocks that had been pushed higher by increased investor interest in the sector.
Indian retail investors, who had flocked to the Reliance Power issue in millions, were left reeling. "People are demoralized, and the sharp fall in the Reliance Power stock price on the first day of listing has dampened people's confidence in Anil Ambani's power story," said Nimish Shukla, a broker and investor in Mumbai.
The power company had sold 260 million shares, priced at the top end of their indicative range and representing a 10.1% stake, in less than one minute in mid-January. The IPO closed with bids for more than 70 times the number of shares offered -- the most investor interest ever generated by an IPO in India, the company said at the time.
But since then India has succumbed to the same downward pressure that has affected other markets on fears of a U.S. recession.
"Reliance Power's valuation reflected bull-market conditions," said Deepak Lalwani, a director at stockbroker Astaire & Partners in London.
IPOs in India generate huge interest among small investors, and the Bombay Stock Exchange hosts a ceremony for new issues. For past IPOs of Reliance units, the convention hall at the exchange has been packed. Yesterday, there were many empty chairs even after Anil Ambani arrived. "Such a lackluster public response!" said Arvind Shah, 64 years old, a broker with Mumbai-based Magnum Equity Broking Ltd. and a regular at such events.
Speaking to the media and shareholders, Mr. Ambani said the vast oversubscription of the IPO last month was testament to the power of India's retail investors. "I believe long-term investors will reap long-term rewards," he said. But as soon as he struck the symbolic gong that marks the listing of an IPO, the price began to fall. After five minutes, it was down 13%.
"We are naturally disappointed that the Reliance Power stock closed lower than the IPO price on the first day of listing," a Reliance Power spokesman said.
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Romit Guha in Bangalore and Tariq Engineer in Mumbai contributed to this article.
