With the right mix of lead managers, pricing and flexibility.

By Radhika Dhawan

They are, sometimes, the Great Depository Routs. Between May, 1995, and March, 1997, the $1 billion Global Depository Receipts (GDRs) issue of the Rs 5,210.58-crore Videsh Sanchar Nigam Ltd (VSNL) was repeatedly, and unceremoniously, postponed for full 21 months. And in November, 1997, the $800-million GDRs issue of the Rs 4,540-crore Gas Authority of India Ltd (GAIL) was indefinitely postponed in the aftershock of the Great Asian Markets Meltdown.

They are, sometimes, the Great Depositary Rallies. In October, 1996, the Government of India (GOI) managed to place a $370 million issue of GDRs by the Rs 7,593.73-crore State Bank of India (SBI). And in November, 1997, in the teeth of the adverse conditions in Asia, the GOI pulled off a $358.74 million issue of GDRs by the Rs 3,493.17-crore Mahanagar Telephone Nigam Ltd (MTNL).

What separates GDRs from GDRs in the volatile global market for GDRs? With both state-owned and private corporations floundering in marketing their issues, it is obvious that wooing institutional investors internationally is part science, part art. One half of a successful issue of world paper lies in planning each element of its launch with the precision of an aircraft designer. And the other rests in implementing them boldly, and imaginatively, like a flier. Combine the two--and learn what no CFO can afford to forget while piloting a GDR issue.

Managing The Lead Managers
Choosing the right syndicate of investment bankers to manage a GDR issue is critical. For, the men in pin-stripes are the ones who take the decisions on how an issue is priced, and when it should be marketed. Thus, the success or failure of an issue rests entirely on their shoulders. Says P.K. Bhattacharjee, 58, deputy managing director, SBI: "The syndicate has to be exceptional."

To get the best out of your lead managers, hunt for specialists. Usually, each investment banker possesses a particular expertise in handling industry-specific issues, or has a special ability to tap investors in specific geographical areas. For instance, Goldman Sachs and Merrill Lynch are strong in the American market. Similarly, while Kleinwort Benson excels in selling the shares of companies in the oil, gas, and telecom sectors, Morgan Stanley copes well with issues by banks.

For instance, in the case of GAIL--which pulled out of the Euromarket at the very last moment--one reason for reading the signs wrong could have been that Jardine Fleming has limited experience in the gas sector. Defends Roddy Sail, 32, director, Jardine Fleming: "Well, there are only a few gas utilities in the world." Crucially, a GDR issue also requires close co-ordination between the syndicate members so that investors do not receive conflicting signals.

An article in the International Finance Review (November 8, 1997), which blamed "syndicate acrimony" for the postponement of GAIL's issue, also mentions that Jardine Fleming, without informing the other investment bankers, offered an alternative pricing structure that completely confused the investors. Concludes Bhaskar Ghose, 43, vice-president and chief representative, Bank of New York: "The partners of the syndicate must complement each other."

Managing The Pricing
Most GDR issues fail because of wrong pricing. This happens when both the lead managers, and the management of the issuer-company fail to figure out what the global investor is willing to pay for the shares. Warns S.K. Shelgikar, 41, the chief financial advisor to the Rs 2,496-crore Videocon Group: "The price of the GDR is a slave to the market--and not the other way around."

In the case of the VSNL issue, the erstwhile Union Minister for Communications, Sukh Ram, was determined to wrest a price of Rs 1,400 while investors were willing to part with only Rs 1,200 per GDR--which led to the postponement of the issue. A similar problem was faced by GAIL: while the price band decided by the management--and the government--was between Rs 125 and Rs 160 per share, the Euromarket was willing to buy at a maximum price of Rs 110.

Compare these botched issues with the Rs 5,703-crore Larsen & Toubro's (L&T) $150-million Euro-issue in November, 1994. When L&T launched its issue, it was soon after interest rates in the US had risen by 0.75 per cent, which pumped a flash-flood of money into the debt market there. Realising that it was not in a position to demand a premium on its shares, L&T sold its GDRs at a 9 per cent discount on the domestic scrip price--successfully.

It is often a good idea to indicate a band--the SBI indicated a band of between 0 and 5 per cent over the market price--rather than absolute values, especially if the scrip is locally traded. This provides a dual hedge: against both an unforeseen crash on the domestic bourses, and against jilted investment bankers who always try to hammer issues that have slipped out of their hands.

Managing Flexibility
Never enter the Euro-market with fixed notions about the price, or the launch date of an issue. Like a good chess player, always work out all your options in advance. Since the international markets are never static, decision-making also has to be nimble enough to meet the changing requirements of the marketplace. Says Ghose: "Two or three days is like an era in the global markets."

When the VSNL first entered the Euro-market, for example, the Union Communications Ministry could not decide whether to accept the lower price demanded by the market--or to spurn the offer. As a result, the issue had to be postponed. To be sure, there is nothing wrong in delaying the launch of an issue if the markets are falling, or if investors are leery about buying at a (higher) price. But the investment bankers should be sharp enough to seize the next-best opportunity as soon as it comes knocking.

For example, the Rs 1,457-crore Hindalco Industries planned to enter the Euro-markets in January, 1993, but was forced to postpone the $108-million issue because of the adverse impact of the Mumbai blasts on Indian scrips. Four months later, the company's issue was oversubscribed three times over. By contrast, Bajaj Auto had to wait for more than 18 months--from April, 1994, when its documentation was ready, to November, 1995, when the issue was launched--before it could sell its $110-million issue of GDRs

It is because politicians fail to take quick decisions that so many issues by public sector companies are postponed-again and again. The exception which proves the rule: the Rs 15,834.91-crore Steel Authority of India's (SAIL) $370-million GDR issue in March, 1996, which sailed through without a hitch. But, in that case, the GOI specified that it would not be involved in the decision-making process.

Probably the best example of the GOI getting it right was the MTNL issue, which was subscribed three times over barely 30 days after the postponement of the GAIL issue. Says Hemendra Kothari, 50, chairman, DSP Merrill Lynch: "Both the government and the company were responsive to the market's needs."

Managing The Marketing
In the Euromarkets, the sectoral flavour of the month keeps changing. "Investors are constantly looking for growth-oriented industries," explains the Bank of New York's Ghose. So, it is important to tap the capital markets just when the investor is ripe for the picking. For instance, the stocks of companies operating in sectors such as telecom, computer software, banking, and pharmaceuticals are at present hot favourites all over the world.

Equally, every company should have a USP to attract investors. sail was projected primarily as an infrastructure stock--not as a steel company. Says A. Chandra, 29, vice-president, DSP Merrill Lynch: "At the point of time of sail's issue, even though investors were not keen on the steel sector, they viewed sail as a secular growth story on the back of India's infrastructure growth prospects."

Moreover, pre-launch marketing helps the book-building process, when investors indicate the number of shares they are willing to buy at what price. And the roadshows enable investors to talk directly to the company. Another sensible tack to follow: always have senior managers talk to investors as the SBI did. Says DSP Merrill Lynch's Chandra: "A convincing management can work wonders at the roadshows."

Of course, the blight that can strike any Euroissue is the cycle of collective irresponsibility: the investment bankers blame the company, which blames its managers, who blames the investment bankers. A successful GDR is one where each stakeholder in the issue's success contributes equally to the effort, and accepts his accountability. After all, when it comes to attracting investors in the Euromarket, there are no bad issues--only bad issue managers.