New Delhi: An empowered group of ministers (eGoM) will meet next week to fix the follow-on public offer (FPO) price of state-owned Rural Electrification Corp. Ltd (REC), a financier of power projects.
“The price will be decided by eGoM on 17 February,” power secretary H.S. Brahma said.
The government plans to raise around Rs4,181 crore through the FPO of 171.7 million shares, amounting to a 5% equity sale. The offer is slated to open on 19 February.
Photo by Rajkumar; Graphic by Yogesh Kumar/Mint
REC’s FPO is part of Congress-led United Progressive Alliance’s divestment programme, under which the government is relinquishing portions of its stake in several state-run firms to raise money.
REC’s divestment will follow a muted response to the FPO of NTPC Ltd, Asia’s largest power generation company. The Rs8,286 crore issue was subscribed just 1.2 times, that too with the help of two large institutional investors—Life Insurance Corp. of India and State Bank of India.
Mint had reported on 9 February that, chastened by the NTPC experience, the government had decided to focus on whether institutional investors should be allowed to revise their bids downward in future issues; fixing the floor price at around 10% discount to the prevailing market price to leave a cushion for retail investors; and calibrating the price of an issue in line with market volatility and liquidity of the stock on offer.
In REC’s FPO, 50% shares will be reserved for institutional bidders to be offered through the French auction route, with the balance divided between retail investors (35%) and high networth individuals (15%).
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.
In a conventional book-building process, an investor can change the bid price at any point of time.
REC sanctioned loans worth Rs42,000 crore for April-December, compared with Rs40,000 crore loans sanctioned in 2008-09. It disbursed Rs16,000 crore loans in the nine months ended 31 December, compared with Rs17,000 crore in the previous fiscal year.
State-run NMDC Ltd and Satluj Jal Vidyut Nigam Ltd are also expected to go for FPOs under the divestment programme, followed by initial public offerings of Bharat Sanchar Nigam Ltd and RITES Ltd, and an FPO for Steel Authority of India Ltd.
The power ministry has asked NTPC to prepare a daily report of its share price after its FPO, hoping to assess the reasons behind the poor response, said an official, requesting anonymity.
Shares of NTPC rose 1.07% on the Bombay Stock Exchange to close at Rs202.60 on Thursday. Shares of REC fell 3.30% to close at Rs222.75. The exchange’s benchmark Sensex index rose 1.45% to close at 16,152.59 points.