SJVN lists at a discount, but retail buyers still gain

SJVN lists at a discount, but retail buyers still gain

Mumbai: Shares of hydroelectricity producer SJVN Ltd, the first state-run company in which the government divested a stake this fiscal, debuted on Thursday below the issue price of Rs26 a share.

The stock market debut of SJVN, formerly known as Satluj Jal Vidyut Nigam, continues a trend of recent listings by public sector companies at below the price at which their shares were sold. But retail buyers of SJVN stock did not lose money as they were sold shares at a discount.

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The weak listing of the first state-owned firm in the government’s Rs40,000 crore divestment road map this fiscal could raise renewed questions about the pricing of public sector issues.

Shares of SJVN closed on the National Stock Exchange (NSE) at Rs25.10, or 3.46% below its issue price, despite a marginal recovery in the equity markets from earlier in the week. On the Bombay Stock Exchange (BSE), the shares closed 3.65% below the issue price.

SJVN, which raised nearly Rs1,079 crore through its initial public offering (IPO) of 415 million shares, listed its shares on NSE marginally higher at Rs27.10, but prices started falling immediately afterwards. On BSE, SJVN opened at Rs28 and closed at Rs25.05

The markets, however, snapped a three-day losing streak triggered by fears of contagion from the Greek debt crisis—BSE’s benchmark Sensex closed 0.68% higher at 16,519.68 while NSE’s Nifty ended 0.57% up at 4,947.60.

Retail investors were sold shares in SJVN at Rs24.70, a 5% discount to the issue price. The retail portion of the IPO, constituting 123.4 million shares, was subscribed 2.6 times. The issue was subscribed 6.61 times.

Naresh Kothari, president, Edelweiss Capital Ltd, attributed the fall in SJVN shares on listing to the volatility that prevailed in the markets between the company’s issue closure and listing day. The 30-share Sensex has fallen 5% in this period.

“The huge oversubscription of SJVN IPO indicates that there was nothing wrong with the issue pricing," he said. While he expects the stock to do well, Kothari said there could be selling pressure from the retail segment.

The government has divested a 10% stake in SJVN, in which it held 74.5%. The power producer is a joint venture between the Union government and the Himachal Pradesh government, which holds the remaining equity.

For fiscal 2011, the Union government’s divestment programme includes a follow-on offer by Engineers India Ltd in June and Coal India Ltd’s IPO, likely in July.

Poor listings have been held responsible for the lacklustre response from retail investors to past public issues of state-owned firms. This was also the reason the government decided to offer retail investors a 5% discount to the cut-off price for institutions in its public issues.

While NTPC Ltd’s follow-on offer was subscribed 16% by retail investors, Rural Electrification Corp. Ltd saw only 25% subscription.

Typically, 35% of a public issue is held for retail investors while 15% aside is kept for high net-worth individuals.

The government wants to sell stakes in up to eight state-owned firms this fiscal.

Engineers India is expected to raise Rs1,100 crore. Hindustan Copper Ltd, Steel Authority of India Ltd, Power Grid Corp. of India Ltd and Indian Oil Corp. Ltd have cabinet approval for public issues.

Graphic by Paras Jain/Mint