The decision to divest 15 per cent of government's stake in the NBCC was taken by the Cabinet Committee on Economic Affairs (CCEA) chaired by Prime Minister Narendra Modi.
Government holds 90 per cent stake in the company, which has a market capitalisation of Rs 14,274 crore.
"The government hopes an estimated receipt of Rs 1,706 crore from this (disinvestment). But it is just estimation," Law and IT Minister Ravi Shankar Prasad told reporters after the CCEA meeting.
An official statement said that in order to inculcate a sense of belongingness amongst the employees of NBCC, it has also been decided to allot additional shares to the eligible and willing employees at a discount of 5 per cent to the Issue/discovered (lowest cut off) price of the Offer For Sale (OFS).
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As per market regulator SEBI's guidelines, the minimum public holding in a listed company has to be maintained at 25 per cent.
National Buildings Construction Corporation Limited (NBCC) was listed on the bourses in 2012 when the government diluted 10 per cent stake to raise Rs Rs 124.97 crore.
The NBCC stock closed at Rs 229.80 a piece on BSE, down Rs 27.60 or 10.72 per cent over yesterday.
The disinvestment of NBCC, the release said, would further broadbase NBCC's shareholding and enhance the disinvestment receipts for making them available to the Government for utilization as per Disinvestment Policy.
Government has pegged disinvestment target at Rs 56,500 crore for 2015-16. Of this, Rs 36,000 crore is to come from minority stake sale in PSU and Rs 20,500 crore from strategic sale.