Reliance Power Plans India's Biggest Initial Sale

Indian billionaire Anil Ambani's Reliance Power Ltd. plans to raise as much as 117 billion rupees ($3 billion) in the nation's biggest initial public offering, three people familiar with the offer said.

Reliance Power, a generating unit of India's second-largest electricity producer by market value, will sell 260 million shares at 405 rupees to 450 rupees apiece, the people said, requesting anonymity before an official announcement.

Parent Reliance Energy Ltd. quadrupled in value last year, the best-performing stock on India's benchmark index, as the government plans to invest $200 billion in electricity generation and distribution in seven years to sustain record economic growth.

``In this bull market, the issue will sail through comfortably,'' said Murali Krishnan, head of research at MF Global Ltd. in Mumbai. ``The amount of IPOs lined up this year, which could be more than $20 billion, could bring down the secondary market as investors sell holdings to buy in IPOs.''

India's Sensitive Index gained 47 percent in 2007, the biggest rise in four years, spurring companies to raise a record $8.5 billion in IPOs, according to data compiled by Bloomberg. Reliance Power will surpass India's IPO record set by real estate company DLF Ltd, which raised $2.3 billion last year.

The share sale will help Reliance Power fund gas, coal and hydropower generation projects in India, the Mumbai-based company said on Sept. 30, after Reliance Energy's board approved the plan.

ABN Amro Rothschild, Deutsche Bank AG, Enam Securities Pvt., ICICI Securities Ltd., JM Financial Consultants Pvt., JPMorgan Chase & Co., Kotak Mahindra Capital Co. and UBS AG will arrange the IPO. Venkatesh Somayaji, spokesman for Reliance Power, declined to comment, as did officials at the banks.

The offer will run from Jan. 15 to Jan. 18, before listing on the Bombay and National Stock Exchanges, the people said.

Reliance Power IPO assigned Grade 4
ICRA has assigned IPO Grade 4, indicating above average fundamentals, to the proposed initial public offering of Reliance Power. ICRA assigns IPO grading on a scale of 5 to 1, with Grade 5 indicating strong fundamentals and Grade 1 poor. The IPO Grade 4 assigned by ICRA reflects the benefits of being a Reliance Anil Dhirubhai Ambani group company.

The expected cost competitiveness of most of the power projects combined with spiraling energy deficits and the group’s plans of maintaining a mix of long term power purchase agreements and short term trading, should result in strong earnings growth in the long term, says ICRA.

Further, the IPO proceeds would enable the company to tie up the equity funding for the first tranche of projects it has identified. The grading also reflects the prospects for the power generation business in the country with increasing regulatory clarity, gradual emergence of a market for trading in power and improvement in financial position of some of the utilities in the state sector.