DLF gets bids for 70 pct of IPO on day 1

MUMBAI (Reuters) - India's biggest IPO of $2.4 billion by developer DLF Ltd. received bids for about 70 percent by Monday afternoon on the first day, bankers said, as big investors shrugged off fears of an overheating property market.The institutional portion of nearly 60 percent of the 175 million share offering was fully subscribed within an hour of opening, the company said.Retail investors were slow to put in applications by mid-afternoon on concern the offering was pricey at an indicated band of 500-550 rupees each, but bankers said they were expected to bid before subscription closes on Thursday."I am a bit hesitant, but that does not mean I would not invest," said Priya Chawla, a retail investor who has been buying stocks for three years. "DLF is a good company, but the pricing is high and one has to stay long term to get enough returns."A buoyant Indian economy has boosted demand for office space, shopping malls and houses, but a sharp rise in prices and higher interest rates have pushed buyers to the sidelines.DLF, which built much of the outsourcing hub of Gurgaon on the outskirts of Delhi, merits a premium given its track record and earnings potential with land holdings of more than 10,000 acres (4,000 hectares), analysts said."DLF is the best way to get exposure to Indian real estate, given its size, quality and credentials," broker Edelweiss Securities said in a client note before the IPO opened."We consider the company a default play on Indian real estate as well as a growth story going forward."DLF said it had received bids for the full institutional portion of 104.4 million shares.Before the IPO opened, the order book for the issue was fully covered, a source close to the deal said. Bids still have to be submitted formally once the offer opens, and in India institutional investors have the option to withdraw bids before the issue closes.If the sale is priced at the upper end of the indicative range, DLF would be valued at around $23 billion, ahead of State Bank of India and ICICI Bank and rival Unitech Ltd., which is worth around $11 billion.Analysts said they expected the aggressively marketed offering of 10.27 percent of DLF's enlarged capital to sail through, but concerns remained about the valuation and the prospects for profitability."While demand outlook over the longer term remains intact, primarily driven by the IT sector, mortgage rates have moved up nearly 200 basis points and impacted investor-led demand for real estate projects," said CLSA in a report before the IPO."The slowing pace of sales may impact prices going forward, which remains the key threat for the sector," it said, adding DLF was attractive at the lower end of the indicated price range.The IPO was shelved in May last year after the stock market dropped sharply and amid disputes with minority shareholders. At the time, New Delhi-based DLF hoped to raise over $3 billion.
PRICEY OFFERINGAnalysts have estimated DLF's price band shows a 9-20 percent premium on its "net present value", or NPV, based on its land holdings and prospective earnings."A majority of the global real estate stocks in Hong Kong and Singapore trade at a 10-30 percent discount to NPV," said First Global Securities before the IPO, adding that each DLF share was worth 413 rupees on an NPV basis.However, DLF's smaller rival Unitech commands a 28 percent premium on NPV, while Mahindra Gesco Developers Ltd. trades at a 40 percent discount and Ansal Properties at a discount of about 35 percent, analysts said.DLF, which plans to spend nearly 70 billion rupees to buy and develop property, has offered brokers 200-500 rupees for every application from their clients, against a normal practice of 0.2-0.4 percent commission on allotment, brokers said."We've not heard of this sort of incentive in the primary market," said M.A.A. Annamalai, director at Akshaya & Co. which has been selling IPOs for nearly two decades.The IPO is lead managed by Kotak Mahindra and DSP Merrill Lynch. Other managers are UBS, Citigroup, Lehman Brothers, Deutsche Bank, ICICI Securities, and SBI Capital Markets.
http://www.ndtvprofit.com/homepage/news.asp?id=302543