L&T Finance IPO to raise Rs 1,245 crore

The Rs 1,245-crore initial public offer (IPO) of L&T Finance Holdings will be one of the closely watched events in the market, as it evokes both hope and anxiety among its participants.

The L&T Finance share sale, where it is likely to dilute close to 17 per cent of post-issue equity, is the largest such transaction this year. In the first seven months of the current calendar year, 21 companies have raised Rs 3,356 crore, with the average being a paltry Rs 160 crore a issue. Muthoot Finance, the largest IPO to hit the market this year, raising Rs 900 crore, has disappointed and is barely hovering around its issue price of Rs 175.

This, interestingly, is the first listing from the diversified Larsen & Toubro group in 60 years.

The mother ship, which will have a controlling stake in L&T Finance, went public in 1950. L&T has a number of subsidiaries like L&T Infotech, Power, engineering and construction, among others, individual businesses in their own right.

Y M Deosthalee, CEO, L&T Finance and CFO of L&T, said the company will take a call on the listing of other subsidiaries in due course. “As and when the need arises,” he said.

But for a group that prides in its record of rewarding shareholders with dividends for every year during its 61-year listed history, getting the second one listed has been unusually laborious, largely due to the hostile market conditions.

Abhay Bhalerao of Equirius Capital says it’s important that large companies with good pedigree come to the market for it to revive. “That’s why this issue is important,” he says.

Deosthalee added that L&T Finance listing was primarily necessitated by funding requirements for the fast-growing businesses the company is engaged in. But it has been a long-winded road for the company to hit the market.

L&T Finance filed a prospectus with the Securities and Exchange Board of India in September 2010 and got approval in December 1, 2010. However, choppy equity markets and lack of investor interest has pushed the IPO for the past eight months. With only four months left before the approvals would expire, the company had to take a call.

Company officials admitted they had to cut their initial expectations of raising at least Rs 1,750 crore.

“The issue was originally planned at a price of around  Rs 75. It has been six months now. If you look at the time value of money, it’s a 30 per cent cut and on top of it, the promoter is taking a price cut of 20 per cent,” said a banker involved in the deal.

Bankers say the price band leaves a lot on the table for investors. Atul Mehra of JM Financial says, “We want investors to make money. In this issue, they will.” Making money in this choppy market largely depends on which way the market is headed three weeks from now, say brokers.

The company has managed to rope in a pre-IPO investment of  Rs 330 crore from two Mauritius-based entities, MACE CIPEF and MACE CGPE, at a price of  Rs 55. The issue will close on July 29. The IPO which opens on July 26 for anchor investors and July 27 for the public will now raise around  Rs 1,245 crore at a price band of  Rs 51-59.

According to the prospectus, the proceeds  will be used for meeting the growing business needs and capital adequacy requirements of the two subsidiaries, L&T Finance and L&T Infrastructure. While  Rs 345 crore will be infused into L&T Finance,  Rs 515 million will be allocated to L&T Infrastructure. The balance will be used for re-payment of inter-corporate deposits by the promoters and for general purposes.