Shares in Reliance Power plummeted as much as 14 per cent in Bombay this morning as the largest stock market float of 2008 confirmed that investor gloom had reached even the most confident of the emerging economies.
The $3 billion (£1.5 billion) initial public offering was fully subscribed in less than a minute when it was opened to the public in mid-January.
The broader Indian market was also in the red. Bombay’s flagship Sensex index was last down about 5 per cent and has now lost nearly a fifth of its value since hitting an all-time high, of 21,206.77, on January 10.
The flotation of Reliance Power, an energy company yet to produce a watt, attracted subscriptions worth nearly £100 billion and was oversubscribed 70 times as the Indian public jostled with the likes of George Soros’s Quantum Fund for a slice of a business that aims to plug the nation’s shortfall in electricity production by building a dozen new plants.
Behind the fervour was a sweeping £4 million advertising campaign — massive in Indian terms — designed to entice the country’s “urban youth” and young women in particular to invest.
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Many new investors regarded RPower a sure bet.
“Ambani is a very big man, [The IPO] cannot fail,” Ajit Burman, a worker in a Bombay newsagent who earns about 6,000 rupees (£80) a month and teamed up with three friends to participate, told Times Online ahead of the float last month.
Mr Ambani’s charisma looked to offset the doubts voiced by several analysts.
The IPO prospectus listed 66 risk factors, “probably some kind of record in itself”, one banker said.
They included the warning that “we currently have no power plants in operation or other revenue-generating operations, and we have no significant operating history from which you can evaluate our business.”
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Two other large IPOs were derailed last week.
The $1.6 billion float by Emaar MGF, the Dubai-backed land developer, would have been the second largest of the year.
It was pulled on Friday after failing to attract investors despite slashing its price band.
By contrast, Reliance Power shares were priced at the top end of the indicative range, at 450 rupees, despite the process taking place in the teeth of growing doubts over the US economy.
The stock rose as high as 599 rupees in early deals today before sliding sharply. In afternoon trade they were down about 7 per cent.
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Local traders said that they were “shocked” by the Reliance Power performance.
But the float, spearheaded by Anil Ambani, the billionaire industrialist, had been beset by controversy from the outset.
The deal saw Mr Ambani spin off part of his sprawling conglomerate, Anil Dhirubhai Ambani Group, at what turned out to be the top of the market.