India's biggest ever IPO

MUMBAI / NEW DELHI: This could well turn out to be the blockbuster of the growing India oil story. UK-based Cairn Energy is all set to capitalise its assets in the Indian basins through one of the biggest IPOs ever. The company hopes to raise an estimated $2 bn from the float. The issue, which will be floated by its Indian subsidiary, Cairn India, is expected to open in mid-December. Cairn struck the largest onland gas find in ’04 in Rajasthan.

The price band of the IPO is pegged between Rs 180 - 200. The final offer price for the float will be determined following the book-building exercise, based on an offer document, which will include price range. An investment banker helping Cairn, on condition of anonymity, said, “Cairn IPO will be bigger than RPL and would fetch anything between $1.6 bn to $2 bn.”

The parent company, Cairn Energy, has a market cap of $6 bn and is one of the sharpest moving scrips at the London Stock Exchange. Cairn’s market cap has increased from $10m in 1993 to $6 bn. The Indian assets of the company, which include the oil and gas blocks in Rajasthan, Rawa and KG basin represent almost 90% of the total market cap. Speaking to ET, Rahul Dhir, CEO, Cairn India, said: “From the global perspective Cairn is perhaps among the few companies that offers predictable cash flows and a unique transforming growth profile in the near term.”

The company proposes to offer 538.47m equity shares of Rs 10 each for cash at a premium to be decided through 100% book-building process. The parent company, Cairn Energy, will own a 69.5% holding in Cairn India following the float (excluding any exercise of over-allotment option). “Today we have filed the draft red herring prospectus with Sebi. A partial proceeds from the IPO would be paid to the parent company to buy its Indian assets and the remaining would be used for the development of the Rajasthan oil fields,” Mr Dhir said.

However, he refused to divulge the amount of proceeds to be given to the parent company for buying Indian assets. Cairn, with investment of $1.5 bn in Indian assets so far, would require another $1 bn to develop the Rajasthan oil fields. The company had already tied up for a revolving credit facility of $1 bn with a consortium of 14 international banks. International Finance Corporation, an arm of the World Bank, has recently envisaged interest in picking up stake in the company for $45m.

The company is expected to file the RHP with the Registrar of Companies in November, subject to the approval of the shareholders at an EGM Cairn Energy. Of the issue, at least 60% will be allotted to qualified institutional buyers on a proportionate basis and not less than 10% will be available for allocation on a proportionate basis to non-institutional investors. About 30% of the issue will be available for allocation to retail bidders.

The parent company has already infused the promoters contribution in Cairn India by way of FDI, already approved by the Ministry of Finance. Cairn India has drawn up an ambitious investment plan of around $4 bn for the development and operations of its oil fields in Rajasthan.

It is estimated that its onland oil finds in Rajasthan, which spans over 18 fields would have an in-place reserve of almost 3.5 bn barrels. The company expects these oilfinds to yield revenue earnings of a whopping $40 bn on an assumed oil price of $40 to $50 a barrel. A large part of these revenues will go to the government coffers. It is estimated that these fields, which are among the largest onshore blocks would have an estimated 1 bn barrels of recoverable oil.