Cairn IPO saved by last-minute heroics

The Rs 5,260 crore initial public offering (IPO) from Cairn India suffered a jolt on the last day of its issue, but managed to scrape through in the end with a minor subscription.

According to merchant bankers, a couple of hedge funds withdrew their applications at the nth hour, which saw the subscription dipping first to 1.12 times at 4 pm and to 0.93 times an hour later. On Thursday, it had been subscribed over 1.35 times.

As a consequence, the earlier subscription deadline of 5 pm was extended to 9 pm.

Inside sources indicated that hedge funds were uncomfortable with the IPO build-up. Finding valuations too high, some of them withdrew, though some were cajoled into rebidding at lower prices. ABN Amro and DSP Merrill Lynch, two of the merchant bankers to the issue, are also said to have used their prop books to support the faltering issue.

With the majority of applications coming in at the lower end of the price band, the issue price is expected to be fixed at Rs 160. Interestingly, mutual funds decided to stay clear of the 32.88 crore-shares offering from the Edinburgh-based oil giant Cairn Energy Plc’s subsidiary.

Volatility in the secondary market has been labelled the primary culprit for the lukewarm response that the IPO generated. Besides, with Mangalore Refinery & Petrochemicals Ltd (MRPL) alleging inadequate disclosures in Cairn’s prospectus, the pitch was queered in the run-up to the issue. MRPL’s contention was that there was ambiguity about the evacuation of oil from Cairn India’s Rajasthan field.

According to an analyst, the high probability of Cairn India getting entangled in legal hassles with MRPL later would have dampened investor sentiment for the issue. In addition, Cairn India’s oil discovery at the Mangala field is said to contain heavy and waxy oil, requiring additional transportation costs for heating up the oil during transportation.

Will the lukewarm response to Cairn’s IPO have any impact on the secondary markets?

“Not really,” says independent investment analyst Arun Kejriwal. “Only if 2-3 IPOs flop in succession will there be a negative impact on the secondary market,” he explains. 2007 has the stage set for two major IPOs - DLF’s Rs 10,000-15,000 crore issue and Idea Cellular’s Rs 2,500 crore issue. Spice Telecom IPO, too, is expected to hit the markets soon.

Raising Cairn

Issue subscriptions dropped towards last day as hedge funds grew skittish

Managers of issue are believed to have chipped in with money

Near failure of issue could cloud market prospects in coming weeks