Power Grid FPO Subscription Numbers and Capital Structure

by Manshu on November 9, 2010

in IPO/NFO

Ritesh Shah had a very interesting question about how many new shares will be issued in the course of the Power Grid FPO, and I thought I’d elaborate the response into a post because there are going to be a slew of disinvestments shortly, and it’ll be good to be familiar with this aspect for future reference.

Let’s take Power Grid’s capital structure for example and see how it works. Before this FPO – these are the number of shares that the government and others held in PowerGrid.

Shareholder

Number of Shares

Percentage of total

Government

3,634,908,335

86.36%

Others

573,932,895

13.64%

Total

4,208,841,230

100%

For the issue, it was decided that the government will sell shares equal to 10% of the existing capital, and issue an additional 10% also.

In this case 10% of 4,208,841,230 is 420,884,123 – which is equal to the number of shares the government is going to sell, and also equal to the number of freshly issued shares.

Number of shares sold by the government: 420,884,123

Newly Issued shares:   420,884,123

This means that post the FPO – the total Power Grid shares will be a sum of the earlier total plus the newly issued shares.

Earlier total: 4,208,841,230

+ Newly Issued Shares: 420,884,123

Total Post FPO:  4,629,725,353

The government will hold shares equivalent to their earlier total minus the shares sold by them viz. 3,634,908,335 – 420,884,12 = 3,214,024,212

Others will hold shares equal to the Earlier total held by others + Number of shares sold by the government + The newly issued shares viz.

573,932,895 + 420,884,123 + 420,884,123 = 1,415,701,141

So, the new structure will look like this:

Shareholder

Number of Shares

Percentage of total

Government

3,214,024,212

69.42%

Others

1,415,701,141

30.58%

Total

4,629,725,353

100%

When they say the total FPO is 20% it means that the total number of shares offered for sale (existing plus new issue) is equal to 20% of the existing capital or pre FPO capital.

The implication of this is that when you issue more shares then your Earnings Per Share (EPS) reduces because now your earnings are spread over a larger number of shares.

When an EPS is reported or a P/E multiple is quoted it is most of the time pre – issue EPS, so that doesn’t take into account the equity dilution due to the new issue of shares. Normally, when an analyst takes equity dilution into account they mention it, so if someone is quoting an EPS or P/E multiple without actually saying that they are taking into account the fresh issue – it is very likely that they are not considering it.

All data from the red herring prospectus

Power Grid FPO Subscription Numbers

The number of shares that are offered during a FPO are reserved for various categories like Qualified Institutional Bidders, Non Institutional Investors, Retail Investors and Employees.

When an issue is oversubscribed the number of shares you get depends on the demand in your own category. For example – the Coal IPO saw very low employee subscription, and an over subscription in all other categories, which means that even though the issue was over-subscribed overall – employees should have gotten the number of shares they bid for, while others got a lesser percentage.

At the end of day 1, here is the demand data for the various categories for Power Grid from the NSE website.

PowerGrid FPO Subscription Numbers

PowerGrid FPO Subscription Numbers

The subscription ratio is not very clear from the above chart, so here is a chart with just the subscription ratio from the same data.

Power Grid FPO Subscription Numbers

Power Grid FPO Subscription Numbers

The data above confirms the commonly known fact that retail investors wait till the end, and you can see that it’s the institutional investors who have already subscribed twice their quota. As the days go by you will see the retail numbers shoot up, and I’ll update this post regularly to see how that pans out.

Update: At the end of November 11th 2010 – the numbers have increased for the QIB part quite dramatically, and have inched up for other categories also but not by so much. Here is how they look like. Data from NSE.

Power Grid Subscription numbers on Nov 11 2010

Power Grid Subscription numbers on Nov 11 2010

Any comments or feedback?

{ 20 comments… read them below or add one }

Nilesh Kumar November 10, 2010 at 4:42 am

Your posting is tooo good ..
Thanks

Reply

Manshu November 10, 2010 at 9:25 am

Thanks for your comment Nilesh!

Reply

RAJAN November 11, 2010 at 1:27 am

Pls contact me i want to now more about this
RAJAN
09868379286

Reply

Manshu November 11, 2010 at 11:03 am

Rajan, I guess you’re interested in buying the IPO, but I don’t provide that service…sorry. Is that what you’re looking for?

Reply

Young@Market November 10, 2010 at 6:20 am

One doubt….
1. lets say QIB is subscribed 5 times
2. reail investor portion only .5 times and employees .5 times and NII also .5 times

how the allocation would be? will retail get full shares they applied for?

Reply

Manshu November 10, 2010 at 9:25 am

Yes, Retail will get full allocation, and the under utilized quota from Retail, NII and Employees will be allocated to QIB.

Reply

dipak November 10, 2010 at 11:30 pm

nice information, pls.update regularly.

Reply

Manshu November 11, 2010 at 11:03 am

Just updated with data from NSE for Nov 11 2010 Dipak. Will update this tomorrow also as I’m also quite interested to see how much the retail part increases at the end.

Reply

Narayan November 11, 2010 at 1:59 am

What about the premium the new investors would be bringing in which would also get added to the reserves of the company. Considering the premium the new investors would be bringing will actually increase the networth of the company by about 15% in this case. It may have an effect of increasing the market price of the stock.

Rgds,

Narayan

Reply

Manshu November 11, 2010 at 11:01 am

They have some 13 projects identified for which they’re going to use part of the proceeds, so that’s always a good thing when the company uses funds for expansion.

Reply

Anu November 11, 2010 at 5:55 am

I want to know the future prospectives of power grid.
Is it worth investing in powergrid fpo at this point of time.

Reply

IFRS November 11, 2010 at 8:41 am

A careful analysis of the figures reveal that the Retail Category is still very much undersubscribed. Is it expected to remain the same or huge applications are expected on the last day of the Issue ???

Reply

Manshu November 11, 2010 at 10:53 am

It will change with retail numbers increasing as they always do on the last day, but it’ll be surprising if there are any major fireworks

Reply

nilesh November 11, 2010 at 9:58 pm

I don’t have demat account, can i apply for IPO, as retailer. Please provide the details.

Reply

Manshu November 12, 2010 at 4:48 am

You need a demat account, so I guess if you really are interested in buying stocks or even debt instruments you should look at getting a demat account. There are several options and the annual fee is in the region of Rs. 500 or so.

Reply

Ash November 12, 2010 at 1:46 pm

Nice information.

I want to understand the impact of equity dilution on F&O segment.
Considering that company is issuing 10% fresh shares (which is equivalent to rights issue), would that mean that strike prices for options would be lowered by 10% ?

If not, buying PUTs just a day before listing of new shares would be wonderful to make money… wat say ?

Reply

Manshu November 12, 2010 at 4:30 pm

I really don’t know about that Ash. Maybe some one else who understands options better can answer that.

Reply

Dev November 16, 2010 at 11:20 pm

I have applied for 1105 shares as retailer in Power grid FPO. Now allocation is very near. Can you please tell me how many shares I ll get in the allocation process?

Reply

Manshu November 17, 2010 at 8:00 am

I’ve read 1/3rd ratio of allocation could be expected, but let’s see, it’s only a few days so you will know shortly Dev. I will update this post or leave a comment once the link to find the allotment is out.

Reply

Manshu November 23, 2010 at 7:05 am

The allotment status is out, and you can check it out at this link:

http://mis.karvycomputershare.com/ipo/

Do let me know how many shares you applied for and how many you got Dev. Want to see how the final ratio turned out.

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