The public issue of Rural Electrical Corporation (REC) was fully subscribed in the first hour of bidding on Wednesday — a record for any government deal done through an offer for sale (OFS), a process introduced in 2012.
Sources in the know said Life Insurance Corporation (LIC) had bid for about 40-50% of the shares, the floor price for which had been set at R315 apiece, a discount of 2% to Tuesday’s closing price of R321.65. Retail investors will get a discount of 5% to the price at which they have bid.
A senior LIC official confirmed the state-owned insurer’s participation but refrained from divulging details. The auction also saw bids from foreign portfolio investors, especially from US-based funds.
The government is assured of at least R1,560 crore from its first sale of the year; it is targeting a record disinvestment in FY16 of R69,500 crore.
The 5% stake sale in the state-owned power financier was subscribed more than 5.5 times as of 3.30pm on Wednesday. The auction received bids for 27.361 crore shares as against 4.94 crore shares on offer, exchange data showed.
The non-retail book was subscribed 4.66 times. More than 18.41 crore shares were bid by various foreign and domestic institutions against 3.94 crore shares on offer, data showed. The retail book was subscribed a little over nine times.
More than 89.07 crore shares were bid against 98.74 lakh shares on offer, data showed.
While final computation of bids was under process, initial estimates suggest the cut-off price is likely to be around R325-330 per share. Shares will be allotted on price priority basis, meaning the highest bid order will be allotted first.
Investors, who are not confident of getting shares in the auction rushed to buy from the market. The counter saw huge spike in trading activity with more than 1.18 crore shares exchanging hands on the BSE and NSE. Volumes increased 4.62 times compared with the average 30-day trading volume of 25.59 lakh shares. Open interest in the derivatives (F&O) space increased 71.87% from Tuesday to 12.38 crore contracts, exchange data showed.
On Wednesday, the REC scrip closed 2.61% or R8.40 higher at R330.05 per share. In comparison, the Sensex advanced 0.67% or 191.16 points to end at 28707.75.
Sources in the know said the government intends to begin the disinvestment process in a phased manner instead of rushing towards the fag end of the year. The new strategy is to keep a pool of companies ready for disinvestment and launch the deal when the timing is opportune.
For fiscal 2016, the Centre has set a record disinvestment target of R69,500 crore, of which R41,000 crore is estimated from stake sales and an additional R28,500 crore from strategic disinvestment. The government has lined up ONGC, which may fetch about R13,382 crore at current market rate. Other names include Indian Oil (R9,147 crore), NMDC (R5,141 crore), BHEL (R2,875 crore), Power Finance Corporation (R1,835 crore), data from the department of disinvestment website show.
