FIIs subscribe to 70% of Power Finance Corp's public issue

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Power Finance Corp, or PFC, the stock which will list on Friday, has very strong subscriptions and indications are that it may not list poorly. S Subramanium, Head of Investment Banking at Enam Financial Consultants says that 30% subscription for the PFC IPO is from India, while the rest 70% is from FIIs.

Excerpts from CNBC-TV18's exclusive interview with S Subramanium:

Q: Subscriptions were very heavy (PFC). Can you give us some sense of where the principal part of the appetite came in from?

A: I think the appetite came in equally from all locations, 30 percent of the appetite was from India, 70% were from FIIs. I think the FIIs were evenly divided, the two largest were Asia Pacific and the US while some amount came in from Europe as well.
But India's contributions were nearly 30%, so Indian institutions came in pretty heavily, trying to say which institutions from where is becoming more and more difficult. This is because lot of institutions even from the US are now operating out of India, meaning the key decision makers are spread across the globe. Sometimes even the sources of money are unknown. But presently India's share hovers around 30% of the remaining two large pools Asia Pacific and the US while the remaining is from Europe.

Q: Any ballpark numbers at all on what sort of HNI interest there was?

A: There was totally HNI or the non-institutional book was subscribed 50 times. So that was a significant amount of demand which came in from there and if you take the total HNI, quota was 10% of the Rs 997 crore and that got subscribed almost 50 times.

Q: There are lot of comparisons flying around between PFC and other lending institutions like IDFC. Do they make for fair comparisons do you think?

A: Yes and no. I think the only two specialized financial institutions in the markets would be IDFC and PFC after it gets listed tomorrow. The only point of divergence is being that PFC is focused purely on power, while IDFC is focused on all areas of infrastructure. To that extent IDFC is diversified but PFC will get the upside from the phenomenal growth, which the power sector investments are going to be, not just in the 11th but in the 12th five-year plan as well.
Some of those upsides are even going to be greater than what we originally thought about because some of these ultra mega power plants are shaping up ahead of schedule.

Q: How much do you think that can muscle up growth for an organisation like PFC by?

A: In the 11th five-year plan, about 65,000 megawatts of plant is going to be added and that too on a base of about a 125,000 megawatts. So, in five years we are talking about nearly about 50%. How much market share will PFC take, how much will be funded internally and how much by other banks, is something each one has to work out.

But, I see that the sector demand for money is significant and I think a significant growth is expected to come from this sector. How much PFC takes is something the PFC management will probably talk to you tomorrow after listing, I guess.

Q: What are your thoughts on the real estate sector? The last couple of stocks you got to the market, Akruti has bombed and Parsnath has tanked big time as well?

A: I think the markets; the only thing they look at is that is there going to be too much further supply coming in into the markets. Simultaneously, I think what has spooked the market is the sudden jump in interest rates to the real estate sector. With the HDFC is also about to announce another 100 basis points jumped in home loan rates I think the markets are worried about all of these. But as far as we are concerned we bought these companies to market sensible valuations.

Both Parvsnath and Sobha had given adequate returns to investors on listing and for a significant period.
Beyond that it is just unfortunate that when Akruti was listed in the market, on the same day listed ICICI Bank announcing a 100 basis point rise in interest rates for home loans, within a couple of weeks you are going to have other banks and HDFC following suit. I think that once we go through this patch we will see good times come back again.

Q: Generally speaking even Cinemax hasn't had a great listing. Do you think investment banks and promoters are being too aggressive at how they are pricing issues?

A: I think it depends upon what you call great listing. On the day of Cinemax listing it closed before the offer price by about Rs 2 and the next day it closed at the upper end of the circuit. I think markets have been volatile the way and they are getting extremely volatile day by day. Interestingly, the next day we listed Redington and that listed like a dream.
So I think intra-day, intra-week market volatility has also has an impact on listing. But to answer that question as far as investment banks and particularly Enam is concerned.

We believe that we are pricing all of these to their fundamentals, unfortunately markets don't go with fundamentals, all the time sometimes they overshoot fundamentals, sometimes they underplay fundamentals. We don't price it for listing day; we don't price it for one week or one month. We believe that over a period of time all out IPOs which people have invested in should make decent enough money for investors to take that IPO risk as well apart from getting the regular investment gains.

Q: You are involved with Indian Bank as well, any concerns on what might happen with that because like you pointed out the mood on banking has gone sour?

A: The mood on banking has gone a little bit sour which is true but having said that Indian Bank is an extremely strong bank, it has rebounded from what it was almost a decade ago. The last two chairmen and the current chairman have done phenomenal job in terms of turning around. I think the amount of reserves the bank has got are in terms of both the tax credit which is on the written off loans and some of the asset is sitting on some of the written off loans which it can recover is significant.

So I think this is an extremely strong bank fundamentally, its likely to list next week and when it list next week we still believe that investors who came in because we priced it at the top band, we believe that the market response is going to be better than the offer price.

Q: What are the big issues that Enam has in the pipeline and how large are they?

A: At this point, more than anything we are waiting for the regulator's observations before we can launch them. In the pipeline we have varied basket right from retail story to couple of real estate to construction companies and a telecom company. So, we have a variety of companies already filed with the regulator. We are waiting for the regulator's feedback before we can launch them. The dates are still full at this point in time.