Now, REC set for bigger IPO

The Rural Electrification Corporation may increase the size of its IPO to provide itself more headroom for borrowing. The REC had earlier indicated that it would follow NTPC's IPO model "" a 10 per cent public float.

The rationale is simple "" the more equity the REC is able to raise, the bigger the loans from banks and other financial institutions will be. This will help the corporation to fund rapid expansion of power projects in the country.

"Our IPO size will be larger than 10 per cent since in terms of net worth we are a smaller company. We need to increase our credit exposure to fund our loan exercise," an REC official told Business Standard.

At the moment, two power PSUs are listed on the stock market. NTPC raised Rs 2,684 crore from its 10 per cent float in November 2004, while Power Trading Corporation raised Rs 94 crore in March 2004.

The REC issue is slated to hit the market after the public issues of the National Hydroelectric Power Corporation and the Power Grid Corporation of India.

"For the ambitious ultra mega power projects, large amounts of money need to be raised. The country needs money to be ploughed into the power sector," the official said.

The Power Finance Corporation (PFC) and the REC fund around 60 per cent of the loans given to the power sector. It is the mandate of the PFC and the REC to provide the loan amount.

The PFC has already filed its red herring prospectus with the Securities and Exchange Board of India. The plan is to sell five per cent as an offer for sale, along with a 10 per cent fresh issue of equity through the public offer. It is awaiting comments from Sebi on its draft offer document.

"The PFC issue is a litmus test for us. We need to wait and watch what happens to it," the official added.