The government plans to sell 4.75% of its stake in National Thermal Power Corporation. For this, the ministry of power has sought the department of disinvestments? approval for a follow-on public offer.
NTPC has told the ministry it will not be appropriate to increase the company?s equity base with a fresh issue as it already has the highest paid-up capital?Rs 8,245.5 crore?amongst the country?s listed firms. NTPC feels any increase will reduce the earnings per share. Further, the projections made by NTPC for funding future capital expenditure needs indicate that the internal resources of the company are more than adequate. The bourses will welcome this move, with just a few high-quality issues arriving this year. The NTPC stock closed at Rs 163.80 at the National Stock Exchange on Friday.
A power ministry note to the disinvestments department says, ?The approval is solicited for allowing NTPC to issue an FPO of 4.75% as a second tranche (the first was 5.25% in February 2004), not exceeding 10% of NTPC?s paid-up capital. With this, the government?s shareholding in NTPC will come down to 84.75% from 89.5%.?
The proposed FPO is aimed at increasing the free float of NTPC?s shares in the market, thereby improving the company?s valuation. ?As a result of the low level of the free float, the turnover of NTPC?s shares is quite low. Besides, for listing the company in the NIFTY and the MSCI, a free float of at least 12% and 15% is required,? the note said.
The power ministry expects that an increased visibility of the company amongst foreign equity investors will have a favourable impact on debt investors. This is likely to result in a reduction in the cost of borrowings to be made from the foreign markets. ?The low cost of borrowing will, in turn, result in a lower capital cost and, consequently, a lower tariff for consumers,? said the ministry?s note. NTPC feels the time is just right for an FPO because institutional investors are taking a great deal of interest in the power sector as well as in NTPC?s stock.