Grey market booms on Reliance Power issue

The grey market for initial public offers (IPOs) is seeing new excitement, with the Power Grid Corporation scrip quoting at a premium even before the company announces a price band for the 100 per cent book-built issue.

Reliance Power has filed a draft prospectus for an IPO and the Sebi clearance is yet to come. Neither has the price band been fixed. The premium, which was Rs 32 on Monday in the grey market, has shot up to Rs 38-40 following the rally in the Sensex.

In the Rajkot grey market, according to a trader, the company's issue forms are traded at Rs 4,000 each for an application of 1 lakh shares.

Incidentally, the forms are yet to be printed. When an investor applies for 1 lakh shares through a broker in the grey market, he will receive Rs 4,000 for the application.

He will have to transfer the shares allotted to the broker. In other words, the listing premium will go to the broker, while investors secure their money before the listing.

The rush in the grey market is attributed to a steep rise in prices of the Reliance group shares, the momentum in power stocks and the handsome listing of Power Grid Corporation.

For the first time, the grey market is quoting a premium for an issue that is yet to get clearance from the market regulator and even before the price band is announced.

Reliance Power proposes to issue 130 crore equity shares of Rs 2 each, which would constitute 11.5 per cent of its post-issue share capital.

The company is expected to raise between Rs 8,000 crore and Rs 10, 000 crore. This means the premium could be in the range of Rs 60-80 for a share of Rs 2.

Grey market traders said looking at the value of the other Reliance group shares and power stocks, Reliance power should list at Rs 100-plus, taking its market capitalisation to Rs 1 lakh crore. The premium will fluctuate depending upon the price band.

Satyam group-backed Maytas Infrastructure's offer price was fixed in the range of Rs 320-370. In the grey market, it is quoted at a premium of Rs 135 a share. The issue was oversubscribed by 68 times.