Mumbai: The poor demand for NTPC Ltd follow-on public offering (FPO) of shares has forced the government to revise auctioning norms for institutional investors in the FPO of public sector units (PSUs).
Two people familiar with the development said that the government decided on Monday to allow institutional investors to revise their bids, up and down. Until now, institutional bidders were only allowed to revise their bids upward; this kept many institutional investors, including foreign institutional investors (FIIs) from the recent NTPC share sale.
Photo: Ramesh Pathania / Mint
“The disinvestment ministry has sorted out the biggest issue faced during the NTPC issue. They have intimated us that the institutional investors will now be allowed to revise their bids both up and down,” said one of the investment bankers handling the Rural Electrification Corp. Ltd (REC) FPO. He did not want to be identified.
Atul Mehra, co-chief executive officer, JM Financial Consultants Pvt. Ltd, another banker handling the issue confirmed the development. “This change in rules will help the issue,” he added.
REC’s share sale opens on Friday and the floor price for the shares will be announced on Wednesday. Wiser from its NTPC experience, the disinvestment department under the finance ministry had decided to consider providing flexibility to institutional investors to revise bids, fixing the floor price at a discount of 8-10% to the market price to attract so-called retail investors, and pricing the issues more attractively. It has now gone ahead and done the first.
NTPC’s FPO, which closed on 5 February, received a lukewarm response, in the absence of retail and FII subscriptions. Mint reported on 8 February that the government was considering a revision of share sale norms after the poor showing of the offer.
Sumit Bose, secretary, disinvestment department had said then that he was in discussions with investment bankers and the Securities and Exchange Board of India (Sebi) could be involved at a later stage to decide if any changes in share-sale norms were required for state-owned firms.
Bose could not be reached for comment Monday evening.
The two people also said that the government could consider changing the way share sales of state-owned firms are priced.
In the case of NTPC, even though the floor price for retail investors was at Rs201, 5% lower than the prevailing market price of 1 February, the day pricing was announced, by the day the issue opened, the discount had reduced to 2% because the stock fell in the interim.
The two bankers said the ministry could fix a floor price at a discount of 8-10% for retail investors participating in the share sales of REC and other state-owned firms.
Falguni Nayar, head of investment banking, Kotak Mahindra Capital Co. Ltd, said any flexibility in the process would help.
“It is too premature to comment as this would require changes in relevant places including Sebi. We have to wait for more clarity to emerge,” Nayar said.
REC is the second FPO under the new pricing norms that Sebi introduced in October. The so-called French auction norms allow retail investors to buy shares at the floor price while institutional bidders are required to bid at any price above the floor price.
Sebi had prescribed this alternative book building method or French auction for FPO to give an automatic discount to retail investors. Any change in the structure of the issues would require an amendment to these rules. Bankers expect this to happen on Tuesday or Wednesday.
According to www.bsepsu.com, a website of the Bombay Stock Exchange dedicated to share sales by state-owned firms, the government plans to raise Rs17,121 crore through 8.38% stake sale in National Mineral Development Corp. Ltd, and Rs4,181 crore through 5% equity sale in REC. The government also plans a 10% initial share sale in Satluj Jal Vidyut Nigam Ltd.