Retail investors have given the Rs 3,500-crore follow on public offer (FPO) of state-owned Rural Electrification Corporation (REC) a thumbs down. The portion reserved for retail investors, about 35% of the issue, was subscribed by just 0.22 times. This was possibly because at Rs 203, the government fixed floor price offered a discount of only 4.53% to the market price on Tuesday. However, there were many takers among institutional investors and the issue was overall subscribed 3.12 times. The stock of REC on Teusday closed at Rs 212.65, down 0.14%. The high net worth individuals portion was subscribed by 2.05 times.
?It is very clear now that for retail investors valuations do not carry any weightage and it is purely the discount that matters,? said Ambareesh Baliga, VP, Karvy Stock Broking. ?Since the secondary markets are somewhat weak, the discount offered was not worthwhile for retail investors to put in their money,? he said.
The offer received an overwhelming response from the qualified institutional buyers (QIB) category that was subscribed by 5.6 times with maximum bids for 16.58 crore shares coming at a price of Rs 206 per share. Interestingly, the offer was fully subscribed at a price of Rs 206 with HSBC turning out to be the highest bidder submitting applications worth Rs 1,000 crore. According to market sources, Life Insurance Corporation (LIC), which had submitted bids close to Rs 3,000 crore at a price of Rs 205 and Rs 204, is unlikely to get any allotment as the offer was fully subscribed at a price of Rs 206 and above with remaining bids from institutional investors coming at a price of Rs 207, Rs 208, Rs 210 and Rs 215.
?Retail investors largely decided to stay away from the public offer due to volatile market conditions,? said a book running lead manager to the issue. However, he said the response from the institutional category was impressive with around 70 investors including domestic and overseas participating in the bidding process.
Though the QIB portion was fully subscribed, experts feel that the normal book building model would have fetched the government higher proceeds from the offer since a major portion of the bids under the French auction system submitted by institutional investors were at a price of Rs 205, Rs 206 and Rs 207, which are close to the floor price of Rs 203. After the poor response to the offer of NTPC and REC, the government has reportedly decided to adopt the normal book building process for NMDC FPO that is slated to hit the capital market during March 2010. Meanwhile, domestic indices ended the trading session with marginal gains, though on a cautious note ahead of the Union Budget. The BSE Sensex gained 0.30% to end at 16,286 while the broader NSE Nifty closed at 4,870, up marginally by 0.28%. Foreign institutional investors were net buyers worth Rs 550 crore while domestic investors sold stocks worth Rs 180 crore.
