Despite the disappointing response to the Rs 8,266-crore follow-on public offer (FPO) of the National Thermal Power Corporation (NTPC), the government has priced the Rural Electrification Corporation?s FPO with a discount of just 7.72% to the closing price of Rs 220.15 on the Bombay Stock Exchange on Wednesday.
The empowered group of ministers, which met in the capital on Wednesday, fixed the floor price for the REC issue at Rs 203. At this floor price, the REC FPO is expected to mop up at least Rs 3,500 crore.
The REC stock is down nearly 20% from its 52-week high of Rs 274.50, which it hit on January 19 this year. The retail portion of the NTPC issue, which was priced at a discount of mere 5% to the ruling market price, was subscribed just 0.16%. NTPC share prices dropped to below the floor price of Rs 201 two days after the issue closed.
?I don?t think this is good enough to attract investors,? said Prithvi Haldea, MD, Prime Database, on the REC issue pricing. ?The discount should have been at least 15%. That would give investors a certain amount of comfort that even if the market falls during the period till allotment, there would be still some money left on the table.?
While earlier the government had decided to stay with the French auction method for the REC issue, which was introduced with the NTPC issue, it has now decided that institutional investors may be allowed to revise their bids lower. ?Qualified institutional buyers may note that revision is permitted with respect to the quantity or price of the equity shares, on any option, for which a bid has been submitted,? REC said in a public announcement on Wednesday.
In the French auction method, the highest bidder gets the number of shares bid for, and so on, till the shares are exhausted. As for the forthcoming NMDC issue, slated to hit the market in March, the government may abandon the French auction method altogether and plump for the traditional book building method in which a price band will be fixed and investors can bid at any price within the band for any number of shares. Thereafter, the issue price will be arrived at and shares allotted on a proportionate basis.
The French auction method didn?t go down too well with institutional or retail investors in the NTPC issue and although the institutional portion was subscribed two times over, two bidders, namely SBI and LIC, had put in Rs 4,000 crore. REC will hit the capital market on February 19, with its FPO of 17.17 crore equity shares, comprising 12.87 crore fresh shares and an offer for sale of 4.29 crore equity shares. After the issue, the government?s holding in the company will come down to 66.80% from 81.82%.