The abandonment of the VSNL float, which was to raise pounds 660m for India's overseas telecoms monopoly, on the day it was intended to be priced, threatens to throw India's massive privatisation programme off course.
More than 100 Indian companies are lined up to tap the Euro-issue market centred in the City of London. VSNL's lead managers, Kleinwort Benson and Salomon Brothers, were expected to make up to pounds 14m between them before the deal was scrapped.
The fear is that Indian companies will draw back from the Euro-issue market as a result, and that City firms will be reluctant to commit themselves to such deals until the emerging markets mature further. This would cut London off from a lucrative income stream.
The VSNL deal also included Warburg, BZW, Goldman Sachs and Merrill Lynch in subsidiary roles. The float appeared to fall victim to rising interest rates, which made it look too expensive, and political infighting in the Indian cabinet.
The telecoms group pulled its offering of global depositary receipts despite strong levels of market interest.
Yesterday the lead managers cut the price of the VSNL shares from an original tentative range of 1,400-1,600 rupees to 1,100-1,200.
Some fund managers had suggested privately that 700-1,000 rupees would have been appropriate, but this figure was unacceptable to the Indian government.
Brokers in London and Bombay said this was a big blow to Indian companies' efforts to raise equity in the overseas markets.
At the Bombay Stock Exchange, India's premier bourse, share prices fell as news of the withdrawal spread.Reuse content