NTPC’s Rs5,000 crore offering subscribed 1.53 times

Mumbai: Retail investors on Wednesday showed little interest in the government’s Rs.5,000 crore share sale in power producer NTPC Ltd, subscribing to less than half the shares reserved for them on the second of the two-day offering.

Of the total 82.45 million shares on offer, retail investors placed bids for 36.36 million shares, stock exchange data showed. In all, 632.57 million shares were bid during the two-day offer for sale against the total size of 412.27 million shares.

The total book was subscribed 1.53 times, data showed.

On Tuesday, the non-retail category comprising institutional investors and high net worth individuals gave a positive response to the offering. A little more than 596.20 million shares were bid against 329.81 million shares reserved for the non-retail category.

Life Insurance Corporation of India (LIC) put in bids for shares worth around Rs.3,000 crore, comprising 40% of the total bids received on Tuesday, according to two people involved in the offer. They requested anonymity as they are not authorised to speak to reporters. Disinvestment secretary Neeraj Kumar Gupta confirmed this in a media briefing.

Earlier this financial year, LIC stepped in and salvaged Indian Oil Corporation Ltd’s offer for sale by buying almost 86% of the issue size of Rs.9,379 crore.

Market experts said weak market conditions and negative performance of past government issuances led to a half-hearted response from retail investors.

Independent market analyst Ambareesh Baliga said that retail investors had lost money in past instances even as shares were offered at a discounted rate.

“Looking at the weakness in the market, retail investors did not want to put fresh money. Also, there is price risk involved and likelihood of further decline in NTPC’s stock price by the time shares get credited to an investor’s demat account,” Baliga said.

Shares of the past six government disinvestment offers since January 2015 have lost between 4.2% and 51.3% of their value from their respective floor prices.

Coal India Ltd ended at Rs.295.60 on the BSE on Wednesday compared with the floor price of Rs.358 per share at which the government sold 10% stake in January 2015.

Rural Electrification Corp. Ltd shares ended at Rs.153.25 apiece on Wednesday compared with the floor price of Rs.315 per share at which the government sold 5% in April 2015.

Power Finance Corp. Ltd shares ended at Rs.150.4 apiece as against the floor price of Rs.254 per share in the 5% stake sale in July 2015.

Indian Oil Corp. shares ended at Rs.370.8 vis-à-vis the floor price of Rs.387 in the 10% stake sale in August 2015.

Dredging Corp. of India Ltd shares are down 22.1% compared with the floor price of Rs.382 set for the 5% stake sale in August 2015. Dredging Corp. shares ended at Rs.297.60 on Wednesday.

Engineers India Ltd shares have lost 20% from the Rs.189 floor price set for the 10% stake sale in January 2016. On Wednesday, Engineers India ended at Rs.151.15 apiece on the BSE.

Market experts said that NTPC shares in the normal market segment were quoting lower than the floor price in the offer for sale and trade volume indicated that many investors may have preferred to buy shares through the existing trading platforms.

On Wednesday, NTPC shares closed at Rs.118.70, down 4.2% from their previous close. The government had set a floor price of Rs.122 per share to sell 5% stake in the state-run power producer.

NTPC’s offer was the first after the Securities and Exchange Board of India tweaked offer-for-sale rules last week, whereby only institutional and other non-retail investors are permitted to place bids on the day of offer (T+0). Retail investors alone can bid one day after the trade date (T+1).

After the sale, the government’s stake in NTPC will decline to 69.96% from 74.96% as of December 2015.

NTPC is the sixth divestment by the government this fiscal. So far, the government has managed to raise around Rs.13,277 crore through five asset sales, far short of its target of Rs.41,000 crore for the current fiscal.

In August last year, the government appointed investment banks for divesting its stake in 10 firms, which were clubbed into two baskets.

Basket one comprised Oil India Ltd, Container Corp. of India Ltd, NMDC Ltd, MMTC Ltd and ITDC Ltd, while power producer NTPC Ltd, Bharat Electronics Ltd, Engineers India Ltd, Nalco Ltd and Hindustan Copper Ltd were part of the second basket. However, the appointments for basket one were scrapped later due to a poor response from investment banks, forcing the government to appoint banks for individual companies from the basket.

In November 2015, it began the process of hiring bankers for the divestment of its stake in Container Corp.

SBI Capital Markets Ltd, ICICI Securities Ltd and Yes Bank Ltd were chosen as the investment bankers for the companies in the first basket.

SBI Capital Markets, ICICI Securities, Edelweiss Financial Services Ltd and Deutsche Bank AG were selected to manage the sale of stakes in the second basket of companies.

The government has also hired bankers for divestment in Coal India Ltd but is yet to announce its launch. Last month, the government also invited merchant bankers to bid for handling the initial public offering of Cochin Shipyards Ltd.