By Abhishek Vishnoi
MUMBAI (Reuters) - India's plan to raise $11.1 billion from asset sales this year was given a boost on Wednesday when it sold a 5 percent stake in Rural Electrification Corp Ltd (REC) and investors bid for more than five times the number of shares on offer.
The sale of stock in REC, a state-run power financing firm, is the first in a string of divestments planned by the government for the financial year that began on April 1. Its completion marks a rare early start for government sale plans, even if the offer itself had been planned for months.
REC will raise a relatively modest sum of up to $250 million, but government officials said strong demand was a boost. The sale ended the day more than five-and-a-half times subscribed, according to exchange data.
"We are encouraged with the overwhelming response to the (sale). We have a whole lot of stocks lined up," divestment secretary Aradhana Johri said in a television interview.
Banking sources said both overseas and domestic portfolio investor demand for REC's shares exceeded supply, reflecting confidence in Asia's third-largest economy.
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Investors, retail as well as institutional, bid for more than 273.1 million shares of REC versus the issue size of about 49.3 million, exchange data showed. The institutional portion was oversubscribed 4.66 times, while the retail portion saw the record subscription of 9.02 times.
Government asset sales are crucial if India is to meet a fiscal deficit target of 3.9 percent of gross domestic product for the 2015/16 financial year. The government has missed its divestment target for the past five years.
A shortfall in receipts from stake sales and taxes has led to cuts in public spending of about $48 billion in the past three years, slowing economic recovery.
"Given the positive response and sentiment from both global and domestic investors there should be good appetite for quality issues if valuations are attractive," said Navneet Munot, chief investment officer of SBI Funds Management.
The floor price for REC stock of 315 rupees a share implied an inexpensive valuation of less than 1 times the company's estimated book value for the 2017 financial year, analysts said.
The cut off price for allocation to the institutional portion would be 327.50 rupees a share, while that for retail would be about 333 rupees, two sources involved in the sale said.
New Delhi's for sale list involves stakes in state firms including Oil and Natural Gas Corp , Power Finance Corp Ltd and NHPC Ltd .
(Editing by Clara Ferreira Marques, Gopakumar Warrier and Mark Potter)