Mumbai: The Rs40,000 crore divestment programme of the government kicked off on a sedate note on Thursday, with the first float of this fiscal—the initial public offering (IPO) of SJVN Ltd—receiving bids for 177 million shares, or 43% of the offer on the first day.
This is the worst opening for an IPO of a public sector unit (PSU) since August.
The government’s recent initial share sales of NHPC Ltd (oversubscribed 3.5 times) in August and Oil India Ltd (1.3 times) in September were both fully subscribed on Day 1 itself.
The SJVN issue also trailed the IPO of Jaypee Infratech Ltd that opened on Thursday. The infrastructure company’s offer drew 85% subscription at the end of the first day.
SJVN, a joint venture between the Union government and the Himachal Pradesh state government, is offering 415 million shares through an offer for sale to raise Rs950-1,070 crore. The Centre holds 74.5% and the state government has the remaining 25.5%. Post-IPO, the Union government’s stake will come down to 64.47%.
The issue has been rated 4/5 by rating agency Credit Analysis and Research Ltd, indicating above-average fundamentals.
Graphic: Yogesh Kumar/Mint
“The baggage of the last three issues by the DoD (department of disinvestment) seems to be affecting the subscription on the first day. But we are sanguine. The issue may not be heavily oversubscribed, but it will be subscribed a few times,” said an investment banker marketing the issue.
JM Financial Consultants Pvt. Ltd, IDFC-SSKI Ltd, IDBI Capital Market Services Ltd and SBI Capital Markets Ltd are lead managers to the issue.
The parent firms of three of these merchant bankers IDFC Ltd, IDBI Bank Ltd and State Bank of India (SBI) will be among the first ones to have put in their bids, the investment banker said. “If necessary, Life Insurance Corp. of India (LIC) would be called to pitch in.”
LIC has in the past heavily subscribed to the public issues of state-run companies. The life insurer placed bids for shares worth Rs8,000 crore in NMDC Ltd, which raised under Rs10,000 crore in March. In January, LIC and SBI bailed out the Rs8,300 crore follow-on public offer (FPO) from NTPC Ltd.
Another banker handling the issue said foreign institutional investors have shown strong interest and the bids will come in the next two days.
While the public floats of NTPC and NMDC were offers for sale by the government, the Rural Electrification Corp. Ltd (REC) issue was a combination of government sale and fresh issue of shares.
The REC issue was well subscribed by institutions, but the other two were bailed out by LIC and SBI.
The first-day response for SJVN is better than these recent FPOs of state-owned firms.
REC’s FPO was subscribed 0.2 times on the first day and finally subscribed 3.14 times.
According to the National Stock Exchange of India Ltd website, FPO of NMDC was subscribed only 0.17 times, with bids received for 57.12 million shares on the first day.
The offer comprised 332.24 million shares in the Rs300-350 price band.
The FPO of NTPC was subscribed 0.77 times on its opening day and just 1.2 times by the end of the final day of the offer.
A note by Sharekhan Ltd, a Mumbai brokerage, said the SJVN issue was being priced attractively in comparison with peers on different valuation parameters.
SJVN quotes at a price-earnings multiple of 14 times at the upper end of the price band of Rs26.
Its peers NHPC (23.5 times) and Jaypee Power Ventures Ltd (121.7 times) are quoting at substantially higher valuations.
Even its price-to-book value of 1.6 times is cheaper than Jaypee Power (5.7 times) and NHPC (1.7 times).
“SJVN has demonstrated stable operating performance in its flagship 1,500MW hydro project over the last five years. This project has been generating robust operating cash flow, which the company expects to utilize to fund its capacity expansion plans,” the Sharekhan note said.
The NHPC float, which hit the market in August, received an overwhelming response. It was subscribed over 3.54 times on the first day, with institutions subscribing six times, high networth individuals 0.0062 times and retail investors 0.00952 times.
Eventually, the issue was subscribed 23.7 times. The issue was offered in the Rs30-36 price band, but the stock price is still languishing below the issue price of Rs36.
Oil India, which hit the market in September, was also oversubscribed on the first day—1.3 times. The qualified institutional buyers’ portion was subscribed 2.13 times and the retail portion was subscribed 0.05 times.