Cairn India IPO

Cairn India, a subsidiary of the Edinburgh-based Cairn Energy, has raised USD 822.5 million through pre-IPO placement. The company has placed 20.97 crore shares at Rs 176.48 per share and 11.88% equity shares via pre-IPO placement. Most of the proceeds came from Petronas (A Malaysia based oil Giant) who evaluated the company to be around 311.54 Billion INR and took 10% of the stake. The other big names who invested during this fund-rasing are Videocon, Black Rock, Petro Drill and Citibank

Cairn IPO shall be open between 11-Dec to 15-Dec. The IPO size of 32.88 crore shares at a price band of 160-190 to translate into 5800 crore INR. Cairn India is to retain USD 600 million of IPO proceeds and rest will be used to Payoff the current promoters. This is the part of the $2 Billion USD the company is planning to raise.

Cairn is into oil exploration which is usually termed risky but I like the promoter and the fundamentals of the company. By 2010, the company’s Rajasthan oil-fields will be operational and Cairn is expected to be producing 20% of India’s crude oil. So if you want oil in your portfolio do invest in this IPO for the long term.

I love companies which try to raise money before going to IPO
1) Petronas/VC would have done a through evaluation of the business prospects. So the books will be in order and not many skeletons are expected out of the closet.
2) The pricing is more realistic. It will not be like the Air Deccan whose prices dipped by 50% immediately after listing.
3) The company most likely needs money for the genuine business needs rather than the promoter simply cash on the boom phase and exiting his business.

190/- might be a bit high but the share is definitely a good but at 160-180 price band.
My strategy:
1) Invest at an upper cut off of 180/-
2) The listing should happen somewhere in March at around 200/- Sell off half your holding at that price which will lower your acquisition cost.
3) Sell of the rest of the holding at 225+.

UPDATE: 7th December ONGC raised an objection to the red hearing prospectus Cairn filed for the IPO. Although serious, It does not effect the long term prospectus a lot. However if SEBI imposes a fine (or does anything more serious than redrafting the letter) it might scare a lot of institutional investors away. (and hence reduce the listing gains)

UPDATE2:15th December: Cairn was oversubscribed only 1.11 times and 0.9 times in retail. So retail investors can expect full allotment at 160/- (lower price band) and the listing is on 9th of Jan.