By Sajeet Mangat, CNBC-TV18
Reliance Power is planning to tap the capital markets with its initial public offer to raise more than Rs 11,000 crore.
The IPO will open for subscription on January 15 and will close on January 18. The IPO price band is between Rs 405-450 per share with a lot size of 15 shares and in multiples thereafter. The company is entering the capital market with a public issue of 26 crore-equity shares.
Off this, 22.8 crore shares, or 30% of the issue, is reserved for retail investors. So, how should retail investors approach the Reliance Power IPO?
The retail category has two payment options. Option one is part payment and the other is a full payment option. Retail investors, who want to make listing gains, should pay upfront. If investors assume that the entire retail subscription will be more than four times, then they should apply for the part payment option. Retail participants will only be able to make listing gains, if their shares are fully paid up.
If one looks at the grey market pulse for the retail category, the IPO is expected to list at Rs 800-900 per share. The retail issue will be subscribed 4-6 times. If that is the case, then retail investors are expected to get between 38-45 shares, with a minimum lot of 15 shares as per the IPO prospectus.
Under the part payment option, allotment will happen nine days prior to listing. The balance part due has to be paid within 12 days of listing. Only then will the shares be credited into your account within 26 days of listing.
However, the scenario totally changes, if the entire retail subscription is above 4 times. In that case, you get the shares on the day of listing. If that happens, assuming the company lists anywhere between Rs 800-900, we are looking at a subscription between 4-6 times. At an oversubscription of four times, investors are looking at a gain between 80-102% on listing day. At five times, investors are looking at a gain of 64-82%. At six times, they are looking at a gain of 53-68% on listing day.
Retail investors, who are paying Rs 1 lakh upfront for 225 shares, are looking at a gain, assuming four times subscription, of 21-27 times. For five times, it is around 17-22 times, and for six times, it is around 14-18 times.
However, there is a risk involved under the part payment option. In case the issue is not subscribed above four times, it means that investors will get shares only after 40 days. That means one would have to wait for 40 days before they can actually come into the market and sell it. But that is a risk which a retail investor has to take. If he assumes that the entire issue will be subscribed more than four times, then he should go for the part payment option, which means that he gets listing gains on day one.
But going by the grey market price, the market assumes the retail category to be subscribed more than four times as of now.
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