InterGlobe's Rs 3,800-cr share sale sails through

Sources say the share sale saw participation from both FIIs and mutual funds

InterGlobe Aviation's Rs 3,800-crore share sale was completed on Friday. The company operates the country's most profitable airline, IndiGo.

The so-called institutional placement programme (IPP) of 33.6 million shares was launched to meet the 25 per cent minimum public shareholding requirement. It got bids for nearly 39 million shares, showed the data from stock exchanges.

The price band was set at Rs 1,125 to Rs 1,175 a share, a discount of up to six per cent to InterGlobe's closing price of Rs 1,198.5 on Wednesday, when the sale was announced. Investment banking sources said most of the bids came at around Rs 1,150. The share price closed on Friday at Rs 1,181.3, down 0.3 per cent on the BSE exchange.

There was participation from both foreign institutional investors and mutual funds (MFs). A fourth of the shares were reserved for domestic MFs and insurance companies. The maximum bid allowed per investor was about Rs 950 crore. By the rules, allotment should be made to at least 10 investors under an IPP programme, while a single investor can be allotted a maximum of 25 per cent. Sources said a handful made big-ticket applications just before the IPP window closed at 5 pm.

Citigroup Global Markets, JP Morgan India and Morgan Stanley India were the investment banks handling the sale. It comprised new equity issuance of around Rs 2,600 crore and secondary share sale by promoter Rakesh Gangwal and others worth a little over Rs 1,200 crore.

In the offer document, the airline had said it would use the proceeds for acquisition of aircraft, purchase of ground support equipment and repayment of debt, including finance leases for planes.

Before the share sale, the promoter holding in InterGlobe was 85.85 per cent. This is expected to drop to 75.85 per cent. There was an earlier IPO in October 2015. By the regulator's norms, it has time till October next year to bring down its promoter shareholding to below 75 per cent.

InterGlobe had issued shares at Rs 765 in its earlier IPO and the stock has risen 57 per cent since then. The consensus 12-month estimate for where the stock would go is Rs 1,265, up only six per cent from current levels. The stock has a total of 10 'buy' ratings, six 'hold' ratings and two 'sell' ratings, Bloomberg data shows.

In a report last month, Elara Capital had issued a 'buy' rating on InterGlobe with a price target of Rs 1,737 a share. "IndiGo's strategy is to focus on growth through higher exposure in high growth quartile 2 routes (top 25-50 per cent in terms of passenger volume) versus peers, that would also improve its passenger-load factor (PLF). IndiGo has the highest order book at 411 (planes) that would help capture major airports' peak-hour slots. Fuel efficient new A320Neo aircraft would help control fuel cost," it said.

"The Indian aviation industry is potentially in its sweetest spot ever, as a strong domestic demand dynamic converges with accommodative government policy and a benign fuel outlook. As the industry enters a phase of high utilisation and increasing yields, the cyclical character of the industry is morphing into a structural opportunity, opening possibilities of sustained returns," Elara Capital had said. 

QIP versus IPP
 

InterGlobe had to opt for the IPP route as it is not in compliance with the 25% minimum public shareholding requirement

QIP

• Private placement of shares
• Involves issue of fresh equity issuance  
• Not an authorised route for complying  with 25% public float norm
• Sebi formula to decide pricing
• Maximum allotment to one investor can be up to 50%
• Minimum investors two if QIP size is up to Rs  250 crore and five if more than that
• Quota for domestic MF and insurers is 10%
• Disclosure requirement not high
• Used by firms that are in compliance with 25% public float norm

IPP

• Public offering
• Can be a combination of both fresh and secondary share sale
• Authorised route for complying with 25% public float norm
• No restriction on pricing
• Maximum allotment to one investor can be up to 25%
• Minimum investors should be 10
• Quota for domestic MFs and insurers is 25%
• More detailed and extra disclosures needed
• Used by firms that are not in compliance with 25% public float norm