Godrej Properties successfully closes IPP offering first to use this route

Real estate company Godrej Properties on Thursday became the first to conduct a share-sale through the new Institutional Placement Programme (IPP) route. Despite the weakness in the underlying secondary market, the Mumbai-based company received bids for 8.7 million shares, against the 8.18 million fresh ones on offer.

Depending upon where the company will price the offering, the sale will fetch it between Rs 470 crore and 507 crore. It had fixed a price band of Rs 575-620 per share.

The shares closed at Rs 618 each, down Rs 21.15 or 3.3 per cent, on Thursday. The benchmark Sensex fell 405.24 points, or 2.3 per cent to 17.196.47, while the BSE Real Estate closed 4.25 per cent down at 1,840.37.

According to sources, the issue would be so priced that Godrej Properties gets to issue a full 8.18 million shares, including an over-allotment option of 744,255 shares. The pricing is likely to be announced before Monday. The allotment to investors will be done on a proportionate basis and not on a price priority basis, said bankers handling the issue. Kotak Mahindra Capital and UBS Securities India are the book running lead mangers.

V Jayasankar, executive director and head (equity capital market) at Kotak Investment Banking, attributed the issue’s success to investor feedback-based pricing. “The issue has done very well in spite of the secondary market not being supportive, due to the good track record of the company and reasonable price band,” he said.

The share-sale was done to comply with the changed 25 per cent public shareholding norms. With the sale, the promoter holding will come down to 75 per cent. The issue size was about 10.6 per cent of the post-issue paid-up share capital.

The IPP route was chosen to raise the public shareholding, unlike Oil and Natural Gas Commission and Wipro. Aggressive auction pricing by ONGC and Wipro under the Offer for Sale (OFS) route had resulted in muted response by institutions. After the success of Godrej, more companies could adopt this route.

What favours bidding for shares under the IPP route is the Asba (Applications Supported by Blocked Amounts) facility. Under OFS, margin issues are to be taken care by the custodian, which had created confusion in the ONGC issue. One of the stock exchanges had failed to upload some bids, due to lack of conformation from the custodian. This risk is eliminated under IPP, as the registrar to the issue and syndicate banks are responsible for settlement and allotment of shares.