The UPA government finally began its long-stalled disinvestment programme with the listing of PSU power giant NHPC on the stock market. That itself is a welcome step. The market reacted fairly positively to the listing, the first public sector undertaking to divest its stake after a gap of 18 months. Shares of the state-run hydropower generator listed at Rs 39 on the BSE, a premium of 8.33% over its issue price of Rs 36. Earlier, the offering was oversubscribed 24 times, underlining the fact that investors are looking at companies that have strong fundamentals, and by their track record, PSUs are an attractive option. NHPC has an installed capacity of 3,615 mw and has another 1,500 mw through its subsidiary, NHDC. Moreover, the company has 4,622 mw of projects under construction that are expected to be fully operational by financial year 2013. It also has another 6,731 mw worth of projects awaiting government clearance. The company has been off government grants since the last two years and its projects are now funded on70:30 debt-to-equity with the equity coming from internal accruals. As projects under construction will now start generating returns, the return on equity will gradually improve. All these factors attracted retail investors, who oversubscribed 3.87 times, and given the power deficit in the country?44% of the country?s households are yet to be electrified?the company should provide a good long-term investment option. Similarly, last month, shares in private-sector utility Adani Power gained 5% on its first trading day.
Given the high institutional interest in the power sector in the country, it is a good time for the government to offer shares of three more power utilities ? REC, NTPC and Satluj Jal Vidyut Nigam?to the public. The government plans to sell 10% of its 25% holding in Satluj Jal Vidyut Nigam Ltd, a profit-making joint venture with the Himachal Pradesh government, from which it is keen to withdraw. NHPC?s response will surely send strong signals for divestment in other public sector companies, too. Next to take the IPO route is Oil India that will hit the market on September 7. The company will offer 2.64 crore equity shares and the proceeds would be used to fund capex requirements of Rs 2,300 crore in 2009-10 and Rs 2,400 crore in 2010-11. Since the government has evinced interest in divesting stakes in six PSUs in the next ten months?the Planning Commission has also stressed the need for an ambitious divestment programme?it will now have to time the public offerings appropriately to get a good response from the market and sustain investor interest.