The Telegraph
Since 1st March, 1999
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Foreign funds chase DLF

Mumbai, June 11: India’s biggest initial public offering — floated by real estate developer DLF Ltd — opened today and quickly notched up 78 per cent subscription by the close of the day.

The portion marked for institutional investors was fully subscribed an hour after the issue opened but retail investors chose to sit on their hands a little longer and chew over comments from experts who feel the issue is far too overpriced at a price band of Rs 500 to Rs 550 per share.

DLF is offering 17.5 crore shares through the flotation. Data available from the stock exchanges in the evening revealed that bids had been received for nearly 13.57 crore shares. Several pundits have panned the issue because of high valuations and the spooky feeling that property prices could start to weaken in some regions.

Data showed that as against 10.44 crore shares reserved for qualified institutional buyers (QIBs), the total number of bids stood at around 13.37 crore shares. The foreign institutional investors (FIIs) were chasing down most of the stocks on offer in this category with bids for over 12.01 crore shares.

Domestic financial institutions put in bids for nearly 1.34 crore shares and mutual funds pumped in funds for around 1.75 lakh shares. Most of the bids came in at the top end of the price band.

Retail investors played true to form: they almost always tend to wait till the last day before handing in their cheques when a big issue hits the market. Retail investors bid for just 17.09 lakh shares out of the 5.22 crore earmarked for this category.

The DLF shares carry a face value of Rs 2. The company is hoping to raise anywhere between Rs 8,750 crore and Rs 9,625 crore, depending on the two extremes of the price band.

Brokerages are divided on whether or not retail investors should plonk down cash for shares in the real estate developer. Edelweiss Securities said in a note prior to the issue’s opening that “DLF is the best way to get exposure to Indian real estate, given its size, quality and credentials”. First Global, on the other hand, felt the asking price was too high.

CLSA, the foreign brokerage, said the IPO band of Rs 500 to Rs 550 per share represented a 9 to 20 per cent premium to its current net present value. It said the premium appeared to be high given the perception that property prices had peaked amid rising mortgage rates.

“While the demand outlook over the longer-term remains intact, primarily driven by the demand from the IT sector, mortgage rates have moved up by close to 200 basis points year to date and has impacted investor-led demand for real estate projects.

“Anecdotal evidences suggest that earlier, new project launches in the NCR region used to get completely sold out over a couple of months from the date of the launch. Now, those are taking more than six to eight months. Slowing pace of sales may impact prices going forward, which remains the key threat for the sector,” it added.

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