In its pre-launch roadshows in the US for its $75 million American Depository Receipts issue, Infosys Technologies has received in-principle commitments from fund managers to pick up its shares at $75 (Rs 3,225 at a Re/dollar rate of 43).
This is a premium of almost 30 per cent over the current domestic closing price of Rs 2490. While the domestic price discounts the company's earnings 59.3 times, the indicative ADR offers would mean a discounting of 65 times its 1998 earnings.
This means that the indicative ADR price offered to Infosys is at a higher discounting than US software giant Microsoft Inc, which is currently trading at a price-earnings ratio of 60.3.
According to sources, Infosys has received commitments at $75 per share for as much as 75-80 per cent of the $75 million ADR issue from US fund managers. The issue is set to be floated in the second week of October.
However analysts contend that the Infosys management is unlikely to price their ADRs at such a high premium. "This is the first time the company is listing its equity overseas, so it's likely that the company will not issue shares at this huge premium and instead allow its new shareholders a chance to make some money," said a fund manager.
Analysts give another reason why Infosys is unlikely to issue its ADR at such a huge premium over the domestic price. "Part of the ADR issue is to give stock options to its existing employees. It also plans to attract new employees to its organisation by offering stock options.
So it is unlikely to issue the shares at a huge premium, which will reduce the incentive for the employees in the stock option scheme," says an infotech analyst.
Fund managers say it is likely that the company will issue the ADRs at around $65 per share or Rs 2,795.
"This will mean a premium of around 10 per cent over the current price and may be more acceptable to the conservative management in Infosys," said a fund manager.
The ADR issue will be used towards expansion and establishing of new software facilities, besides acquiring software companies in the US in future.
The company has named San Francisco-based NationsBanc Montgomery Securities Inc and Hambrecht Quist to handle its ADR issue, which is likely to open in the second week of October.
