Power Grid Corporation of India Ltd, (PGCL) India’s leading power transmission company, plans to raise money through an initial public offering (IPO) to fund, among other things, 15 projects at an investment of Rs12,281 crore, the company said in a filing with the stock markets regulator, Securities and Exchange Board of India.
The company will raise an undisclosed sum through the sale of 38.2 crore shares to the public. Simultaneously, the government will offload 19.1 crore shares, thereby reducing its holding in the company to 86.36%. The government is piggybacking on the IPO to divest 5% stake in the company. Kuljit Singh, partner at accounting firm Ernst & Young, said the pricing of IPO cannot be aggressive due to the market volatility, and to make it successful pricing will be the key factor.
Prithvi Haldea, managing director, Prime Database has a different point of view on the pricing issue. “Market conditions are not critical to a power supply unit (PSU). The timing is perfect,” he said. PSUs have a history of conservative pricing which allows investors to benefit subsequently.
Therefore, market volatility would not have a significant impact on the response to the company’s IPO, he added. The company’s return on equity (ROE) was 9.41% on 31 March 2006, down from 12.10% on 31 March 2004.
“The decreasing return on equity is true across all the power sector companies as the Central Electricity Regulatory Commission has brought down the ROE from the earlier 16-14%,” Singh explained.
Some of the large projects that would be part-funded by the IPO include the power transmission system (Rs3,779.50 crore) associated with the Barh project and the power transmission system (Rs1,997.80 crore) for the Sipat-I project. PGCIL plans to make a total investment of Rs55,000 crore during the next plan period (2007-12) to increase the inter-regional power transmission capacity to 37,000 megawatt (MW) from the present capacity of 12,000MW. This is the third IPO from government-owned PSUs to tap the capital market after Power Finance Corp and National Hydroelectric Power Corp. Power Grid’s IPO may hit the market in June 2007.