The Videsh Sanchar Nigam Ltds $527 million debut flotation on the international capital markets has been spectacular on all counts. There was serious demand for its stock and the issue was oversubscribed four times at the price of Rs 1,000. This allowed the company to price its issue at a premium to the closing price on the BSE. While there is no doubt that some of the excess demand was only froth "" fund managers have a habit of making a successful issue look even more spectacular by placing unrealistic orders, thinking that the more they order, the more shares will be allotted to them "" the fact that VSNL can opt to take up its greenshoe option of $ 79.11 million does indicate that the issue has been well received by the investors.
The performance in the secondary market confirms this. On its first day of trading, the GDR was being quoted at $17.50, a premium of about 25 per cent to its issue price of $13.93. Unlike other GDR issues in the past, which though priced aggressively slid after listing, the VSNL GDR seems to have attracted strong buyers in the secondary market. This indicates that not only was the market happy with the level of pricing which discounts the 1996 earnings only 16 times, but also that the paper has been widely distributed among long-term investors.
With most of the demand coming from dedicated India funds, global telecom funds and emerging market funds, and the investor base dispersed widely across the globe, VSNL has managed to get high quality long-term investors for its paper. This absence of flippers, or hedge funds, from the investor base will mean that secondary market prices will remain stable.
Also Read
Its subsequent domestic issue should also have little impact on the GDR prices as the quantum of shares being offered locally is only 700,000 compared to almost 14 million shares sold internationally. Though these shares will be priced at a slight discount to the GDR price, it is unlikely to have any ramifications on the GDR price. This is because it is unlikely that many foreign institutional investors will choose to swap GDRs for domestic shares. Indeed, the opposite may well be true. That is, the success of the GDR issue could well help the company sell its shares to domestic investors who are still coy about investing in high-premium issues.
The question is whether the VSNL issue will help other Indian companies planning to raise equity from the international market. This may not happen, for many reasons. VSNL is a telecom stock which has been a favourite sector for investors for some time now and this is their first major Indian play in it. Besides, VSNLs monopoly as an international carrier till 2004 and benefits like a five-year tax holiday and increased access to cheaper foreign debt that telecom firms will enjoy because of its infrastructure status should all boost the profitability of the company. As will the lower import duties on components and equipment. All these factors make VSNL a very attractive buy for investors. Unfortunately not many other companies, except other dominant public sector giants, will be able to make their stories so compelling for the investor.