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Mumbai: The government’s effort to raise funds by selling a 5% stake in state-run power producer NTPC Ltd through a two-day offer for sale (OFS) received an enthusiastic response from institutional investors, who bid for almost triple the shares allocated to them in a volatile market.

The two-day offer for sale (OFS) will cut the government’s stake in NTPC to 69.96% from 74.96% as of 31 December.

Bids worth 7,288 crore were received for the shares allocated to institutional buyers, of which 5,325 crore came from insurance companies, while foreign portfolio investors bid for 925 crore worth of shares.

Life Insurance Corporation of India (LIC) put in bids for shares worth around 3,000 crore, approximately 40% of the bids received on Tuesday, according to two people involved in the offer. They requested anonymity as they are not authorized to speak to reporters.

Earlier this financial year, LIC stepped in and salvaged Indian Oil Corporation Ltd’s offer for sale by buying almost 86% of the issue size of 9,379 crore.

Disinvestment secretary Neeraj Kumar Gupta said participation by foreign investors in the NTPC share sale was encouraging and hoped that the retail portion too would receive a good response.

“There was encouraging response from all segments of institutional investors and FPIs, signalling the appetite in the market. There are a large number of insurance companies, including public and private, which have participated in the share sale," Gupta said.

“The government will continue to sell minority stakes in PSUs (public sector undertakings). We will diversify into strategic stake sale once the policy is in place," Gupta said.

The government is currently working on a policy to sell strategic stake in both money-losing as well as profitable public sector units. The policy is expected to be announced in the Union budget to be presented on 29 February.

So far this fiscal, government has raised more than 13,300 crore through disinvestment in five PSUs—Engineers India Ltd, Indian Oil Corporation, Power Finance Corporation Ltd, Rural Electrification Corporation Ltd and Dredging Corporation of India Ltd. This is against a target of 69,500 crore for 2015-16.

Volatile market conditions have affected the government’s disinvestment plan, which mostly have commodity and oil stocks in the pipeline.

The government had set a floor price of 122 per share for the sale, NTPC said in a stock exchange filing on Monday. The highest bid received for the NTPC offer on Tuesday was 131 per share.

NTPC’s offer, putting 412.2 million shares on the block, is the first after the Securities and Exchange Board of India tweaked OFS rules last week.

According to the new rules, institutional and other non-retail investors will be permitted to place bids on the day of offer (T). Retail investors and those non-retail investors who have placed their bids on T-day and have chosen to carry forward their bids will be able to bid for shares one day after the trade date (T+1 basis).

The allocation for institutional investors represents about 80% of the shares in the OFS. Subscription for the retail portion will open on Wednesday.

SBICAP Securities Ltd, ICICI Securities Ltd, Edelweiss Securities Ltd and Deutsche Equities India Pvt. Ltd are managing the offer.

Tuesday’s share sale in NTPC will be the fourth public offering in the thermal power producer. The firm went public in October 2004.

The government sold a 5% stake to raise 2,684.07 crore.

The government sold another 5% through a follow-on public offer in February 2010 that helped raise 8,480.10 crore.

The government sold an additional 9.5% stake in the firm through an OFS to raise 11,457.54 crore, data from the department of disinvestment showed.

NTPC is the sixth divestment by the government this fiscal year.

So far, the government has managed to raise 13,277 crore through five asset sales, far short of its target of 41,000 crore for the current fiscal year.

The government has also hired bankers for divestment in Coal India Ltd, but is yet to announce its launch. Last month, the government invited investment bankers to bid for handling the initial public offering of Cochin Shipyards Ltd.

Shares of NTPC fell 2.33% to 123.90 on the BSE, while the benchmark Sensex shed 1.59% to close at 23,410.18 points on Tuesday.

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