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Satyam ADS to be priced at $9.35

NetScribes/Ganesh Ramamoorthy

Indian software major Satyam Computer Services' scrip dipped in early trades on Monday following the news that the offer price of its ADS issue was at a discount to its local share price.

At 11:30 AM IST, the Satyam scrip was trading down 2 per cent at Rs 225.55 from its previous close of Rs 227.40 with volumes of over 1 million shares on the Bombay Stock Exchange.

Market sources said that the offer price of Satyam's $ 115-million ADS (2 local shares equals one ADS) issue would be about $9.35. At this ADS price level, the equivalent price for the local share works out to about Rs 217, a discount of 4.4 per cent to Satyam's last closing price on Friday at Rs 227.

Satyam is offering 12.5 million ADSs representing 25 million equity shares. The underwriters - Merrill Lynch & Co, Deutsche Banc, Alex Brown, Banc of America Securities LLC, Salomon Smith Barney and CLSA Emerging Markets - may purchase up to an additional 1.875 million ADSs representing 3.75 million equity shares to cover over-allotments within 30 days of the pricing of the offering.

With the books set for closing on May 14 (and listing after that on the NYSE), analysts expect the list price to be at a premium of about 5-10 per cent to the offer price of $9.35.

"I would not really comment on the ADS price because a discount is hardly a concern in a dull market situation. Waiting for the markets to revive and then get a good price for the shares will take a long time given the slowdown in the US," said Priya Rohira, analyst at Pranav Securities.

"Moreover, since Satyam is looking for greater visibility and mileage with its US clients, who are generally happy dealing with companies that can display their valuation in the US, the ADS is certainly a positive for Satyam," she added.

Meanwhile, "the ADS received good demand with subscription already about 2-3 times the issue size," said a dealer with a leading foreign brokerage firm.

Some financial institutions that have evinced interest in the issue include Janus Capital Fund, The Capital Group, Alliance Equity, etc, though a couple of funds were reportedly selling Satyam shares last week to take advantage of the discount pricing of the ADS.

The ADS, besides helping in doling out ESOPs to US-based employees, will give Satyam a valuable currency for acquisitions, which, analysts say, is an attractive proposition in the current poor market conditions.

Also, the ADS would fetch Satyam cash in excess of Rs 5 billion, which would help it repay debt while the balance can be used for expansion.

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