The initial public offer of the world’s largest solar EPC company has failed to attract the interest of retail investors in its host country of India.
VCCircle recently reported that Sterling & Wilson Solar Limited was forced to reduce the size of its IPO following poor response from retail investors. The company had initially planned to offer 22.17 million shares, excluding the anchor portion, but managed to garner bids for just 19 million shares. As a result, the initial estimates of the IPO size of around US$650 million have now been revised to around US$450 million.
According to various media reports, only qualified institutional buyers oversubscribed the shares earmarked. The portion earmarked for large non-institutional was subscribed up to 90%. However, the real disappointment came from the retail investors where the earmarked portion was subscribed up to just 30%. Retail investors are the small individual investors that are allowed to bid up to US$2,900.
The fact that small retail investors were hesitant to invest in a company that has virtually no listed competitors (several infrastructure and power companies listed in India do offer EPC services but not as a core business) indicates the challenges, and perhaps lack of understanding on part of retail investors, that renewable energy business face in India.
Another important factor that played part in the poor performance of the IPO was the general economic slowdown and consumption slump in India. This slowdown has been mirrored aptly in the performance of major indices in India that has slumped sharply from their all-time highs.
We had covered a story recently highlighting the geographical diversification of the company’s business. Around 75% of the company’s business comes from markets outside India. This does insulate the company from some of the challenges being faced by the Indian renewable energy companies still, the retail investors did not find the IPO attractive.
However, a counter view could be that this performance was as per expectations. Several renewable energy companies, mostly project developers, scrapped IPO plans. Sembcorp, ReNew Power, Acme Cleantech, and Mytrah Energy all either filed draft red herring prospectus with the market regulator or had reportedly considered an IPO. All these companies are reported to have dropped such plans, with some now considering the development of yieldcos instead.
Perhaps the scariest example of a bad investment in India’s renewable energy sector is Suzlon Energy. The leading wind energy O&M player, with more than 18 gigawatts of assets under service, has destroyed investor wealth over the last few years. Shares of Suzlon Energy once traded at a high of US$6.30. With rising debt and policy interventions by the government, the company’s debt has been classified as a non-performing asset and its shares trade at just US$0.06.
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