After lacklustre investor response on the first two days, public sector banks and insurance majors stepped in to salvage the follow-on public offer (FPO) of state-owned Rural Electrification Corporation (REC) which closed with the issue subscribed over three times.
This last-day rush by institutional investors has prompted primary market experts to raise questions on the pricing and the government’s approach to the disinvestment programme. Market players have already started speculating about the fate of National Mineral Development Corporation (NMDC) that is next in line with its mega-FPO of around Rs 15,000 crore in March. According National Stock Exchange final figures, REC’s FPO was subscribed 3.14 times with bids received for 539.7 million shares, against 171.7 million shares on offer at a floor price of Rs 203 per share.
The qualified institutional buyers (QIB) category has been subscribed 5.52 times. The maximum number of bids for 236 million shares in the QIB segment was received at Rs 205.
Bids for 165.8 million shares have been received at Rs 206 per share.
The non-institutional investor category has been subscribed 2.05 times with bids received for 52.8 million shares.
| A LITTLE HELP REC Final Day subscription | |
| Segment | Subscription (times) |
| QIB | 5.51 |
| HNI | 2.05 |
| Retail | 0.22 |
| Total | 3.14 |
The retail segment, however, remained undersubscribed with bids received for 13.8 million shares, against nearly 60 million shares on offer.
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People familiar with the development said state-run Life Insurance Corporation (LIC) put in bids worth Rs 3,000 crore at Rs 205 per share. Source said public sector banks bids for shares worth Rs 1,200 crore, of which Rs 500 crore was bid by State Bank of India and Rs 300 crore by Canara Bank. The highest bid came in at Rs 215, for 214 million shares. Many mutual funds and foreign institutional investors (FIIs) are also in the fray.
Marketmen, however, are not convinced. "Last-day negotiations at the highest level saw the issue being oversubscribed," said a banker on condition of anonymity. "As with the NTPC FPO, state-owned entities had to chip in for REC. It is anybody's guess what will happen to NMDC," he added.
The NTPC FPO, which was subscribed just 1.2 times, was also bailed out by government-owned insurance companies and banks. According to NMDC's draft offer document filed with the Securities and Exchange Board of India (Sebi), the company is coming out with an offer for sale of 332.2 million shares .
"It is not disinvestment when you have government companies like LIC and SBI making bids," says Ashok Kumar, CEO, Lotus Knowlwealth, who tracks the primary market. If the government is not getting retail investor participation, it should opt for qualified institutional placement instead, he added.
Union Minister for Power Sushil Kumar Shinde, however, expressed satisfaction at the result. "In such critical conditions REC has received bids for Rs 10,000 crore according to our estimates and foreign investors have participated in large numbers," he said.
A section of market players are blaming the French auction mechanism for the subdued response to NTPC and REC. Investment bankers managing the issue, however, have strongly defended the French auction process, an alternative book-building model under which institutional investors bid above a floor price, while attributing NTPC's subdued response to market conditions.
“Since most of the bids have come close the market price which indicates that the French auction process has not worked,” said Prithvi Haldea, Managing Director, Prime Database.