Falling Short

SWSL’s IPO marginally undersubscribed

By Sarthak Takyar

The solar engineering and construction arm of the Shapoorji Pallonji Group, Sterling and Wilson Solar Limited (SWSL) received bids for nearly 19 million shares for its initial public offering (IPO) of 22.17 million shares, excluding the anchor portion. The issue has been subscribed only 0.85 times. Under the qualified institutional buyer category, the issue has been subscribed 1.02 times. Under the non-institutional investor category, which includes corporate houses and affluent individuals, it has been subscribed 0.89 times while in the retail individual investor category, the IPO has been subscribed 0.30 times.

In view of the government’s focus on solar power development, many domestic brokerage firms had advised clients to subscribe to the issue, but volatility in the global equity markets due to the escalating trade war between the US and China deflected many investors. SWSL was aware of the situation, but it decided to stick to its plan even if it meant a lower valuation and undersubscription of its IPO. Given the market conditions, the company had trimmed its IPO from the proposed size and moderated its valuation expectations by nearly a third, aiming to become the first Indian solar engineering and construction company to go public. The company sought a valuation of Rs 125 billion in the Rs 775-Rs 780 per share price band. That was lower than the estimated Rs 180 billion valuation at the time of filing its draft prospectus in April 2019. Accordingly, the IPO size was also revised from Rs 45 billion to Rs 31.25 billion.

Many renewable energy firms in the past have also faced the same challenge and have withdrawn their proposals just before their launch dates. For instance, the ACME Group had released a draft proposal to float an IPO for its solar power arm in September 2017, but finally decided to defer it. In February 2018, Singapore-based Sembcorp Industries filed for an IPO to list its India energy unit, but cancelled its plan in June 2018. Meanwhile, ReNew Power, India’s largest green energy firm in terms of capacity, filed its documents in May 2019 for a Rs 70 billion-Rs 75 billion IPO, but has recently shelved its plans. Besides external factors, some sector-specific issues have posed serious concerns for developers, thereby impacting investor sentiment. On the one hand, land- and transmission-related constraints have slowed down project development while on the other hand regulatory uncertainties and poor discom health have led to cash flow risks for operational projects. These issues have certainly contributed to the undersubscription of SWSL’s IPO.

SWSL (formerly Rashmika Energy Private Limited) started operations in 2011 as the solar engineering, procurement and construction (EPC) division of Sterling and Wilson Private Limited. In 2013, the company completed its first turnkey project, a 36 MWp solar power plant located in India. In 2014, it entered the international market and in 2016, it ventured into the rooftop solar space. The year 2017 was eventful for the company. Apart from demerging from its parent company, it commenced work on the world’s largest single-location solar PV plant in Abu Dhabi, which was commissioned in July 2019. Over a span of seven years, the company has expanded to 26 countries and now has a portfolio of 205 solar power projects with an aggregate capacity of 6,870.12 MWp. However, the global expansion has increased supply chain and exchange risks. Also, in many of the geographies where the company has set up operations (like Southeast Asia and Africa), the solar power market is at an early stage of development. According to the draft red herring prospectus, SWSL relies on a few customers and suppliers for its business. Thus, any reduction in demand, or failure of any one supplier could impact performance. Meanwhile, the increasing competition in the EPC market in India is likely to further reduce profit margins.

IPO and listing details

The IPO comprised a sale of 40.06 million shares. This included an offer for sale of Rs 20.83 billion from Shapoorji Pallonji and Company Private Limited and Rs 10.41 billion from the company’s chairman, Khurshed Yazdi Daruvala. The face value of each share was set at Re 1 with the price band for the IPO being Rs 775 (floor price) to Rs 780 (cap price). The global coordinators and bookrunning lead managers of the issue were ICICI Securities, Axis Capital, Credit Suisse Securities (India), Deutsche Equities India, IIFL Securities and SBI Capital Markets, IndusInd Bank and YES Securities (India).

On August 5, 2019, a day before the IPO was floated, SWSL raised Rs 14.06 billion from 27 anchor investors. The Nomura India Investment Fund, Schroder International and the Abu Dhabi Investment Authority were the leading investors and were allocated 16 per cent, 12.24 per cent and 8.82 per cent of the total anchor book size respectively. The stock finally made its debut on the bourses on August 20, 2019, listing at a price of Rs 706 per share on the National Stock Exchange and Rs 700 per share on the Bombay Stock Exchange. The listing of the stock at a rate lower than the issue price has more to do with weak market conditions rather than any shortfall in SWSL’s performance.

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