Disinvestment in doldrums...NTPC FPO draws poor response

The Government's big bang disinvestment plans to curb spiraling fiscal deficit kicked off on a sour note with the NTPC follow-on-offering (FPO) failing to generate enough interest amid a carnage in global stocks. Several reasons were being speculated for the dismal performance of the NTPC issue, including low fees paid to the merchant bankers by the Government. But, chief among those reasons was said to be the high bid placed by state-run institutions - LIC and SBI. According to reports, the high bids quoted by LIC and SBI in the first ever French auction for a public issue in India managed to drive away potential investors of all categories.

The Rs83bn NTPC FPO managed to scrape through and was fully subscribed primarily due to the support from public sector banks and insurance monolith LIC. The issue was subscribed only 1.2 times. It received a little over 100,000 applications from the retail investors. It received bids for 49.36 crore shares against the 41.2 crore shares on offer. NTPC owns the country’s 20% power generation capacity.

While the QIB portion was fully subscribed the response from the Retail investors and HNIs was highly disappointing. Retail investors did not see much opportunity in the NTPC issue as the floor price of Rs 201 was not much higher than the current market price. The duration of the issue saw the scrip run up from Rs 205 to a high of Rs 211.65 and fall 3.4% since then.

The big worry is that the forthcoming public issues of Rural Electrification Corporation (REC) and NMDC could also suffer the similar fate, especially if the market sentiment doesn't improve materially. REC is set to open on February 19 while NMDC issue will open on March 10. What's worse, both these issues are also going to be done under the French auction route. These two issues are expected to raise a combined Rs185bn. Meanwhile, in another setback to the Government's efforts in curtailing the fiscal deficit, the Power Ministry has decided to postpone the IPO of Satluj Jal Vidyut Nigam Ltd. The issue is unlikely to hit the markets in the current fiscal years, according to reports.

Meanwhile, several smaller IPOs that preceded the NTPC FPO also saw lukewarm retail participation. In some of these, the institutional investor portion was also low. Non-institutional investors helped these issues to sail through. Of the six IPOs in the last one week, only DB Realty (issue size: Rs12.88bn) did well. The others just about managed to get fully subscribed.