Sunday, February 17, 2008

Lead (not so) kindly light

Reliance ADAG group jingled “power on, India on” just before Reliance Power IPO. The stock debuted in the market and put all lights off. When the alley was all dark, Anil Ambani emerges from the shadow holding a candle.

People didn't figure out it was hoax yesterday? Good lord. Pull your heads out of your butts, people....

First, could it be a genuine expression of an overwhelming sense of guilt? A sort of admission – Yes, we overpriced the stock and valuations rode on the Reliance track record more than fundamentals. But bonus shares are not the same as “money back”, it just signifies a reduction in premium. It increases the floating stock and effectively reduces the stock price in the short term. It does not reduce your pain, but now you can see Anilbhai’s face in the candle glow better.
Second, R-Power has collected only 10% from QIB and 25% from retail investors. It has to collect the remaining 90% from QIB and 75% from investors scarred by its listing inferno. Even if the company forfeits the marginal upfront application money paid by investors wanting to back off, investors could still cut their losses on the unpaid allotment money part and run. That would effectively mean IPO is undersubscribed and hardly can R-power proceed to reissue shares at a discount.

Third, the R-ADAG group can hardly afford to disillusion investors if it has a series of IPO plans lined up. Its private equity fund is entirely funded by Anil Ambani’s personal wealth and has some huge investments in entertainment, real estate and technology. All these companies will have to go public sooner or later and it’s easier to milk a faithful investor base. That’s a grand strategy and a surefire exit route. It’s a bad idea to choke up that pipe right now.

Fourth, what’s R-ADAG got to lose anyway on the closing price of Rs.372 on the opening day? R-ADAG promoters in fact got a debut valuation at a premium of Rs.355 on its Rs.17/- per share (fully paid-up) investment in the Reliance Power *shell* already. It makes a pomp and show about its magnanimity in depriving itself of the present bonus allotment. The fact is, it already got its bonus as much as 20.88 times over !!!

The hidden pack of beneficiaries could be the usual suspects. Amar Singh, Mulayam Singh and the Bachchan family holdings. Not to forget Reliance Energy's majority holding and its scope for recoupment in the long term...:)

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