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Financial year 2015-16’s first disinvestment by the government got an encouraging response, with the share sale seeing five times more demand than those on offer. The central government on Wednesday divested five per cent stake in Rural Electrification Corporation (REC) to mop Rs 1,550 crore. The 49.4 million share offering of the power financier received a total of 273 million bids — worth around Rs 8,500 crore.
The retail category, which had 20 per cent reservation, was subscribed over nine times, while the institutional investor segment saw nearly five times subscription, data provided by stock exchanges showed. The indicative price, the price at which most bids were received, was around Rs 325 — much higher than the floor price of Rs 315 set by the government. Shares of REC closed at Rs 330.05, up Rs 8.4, or 2.61 per cent. Retail investors were offered an additional five per cent discount on the allotment price.
The robust demand was on the back of attractive pricing and good long-term prospectus, said market experts.
The offer for sale (OFS) was done on a price priority basis; allotment will be made to investors bidding at the highest price.
“A lot of retail investors bid around the floor price. The chance of such investors getting allotment is slim. After looking at the strong demand some investors wanted to revise their bids higher. However, they were not able to do so due to some system issue,” said a senior official with a domestic brokerage.
“While uncertainty around asset quality has been the key concern for a while, REC has not witnessed worrying accretion of stressed assets so far. The floor price implies an inexpensive valuation of one time the FY17 P/ABV (adjusted book value) which we believe is an attractive entry point for long-term investors,” said domestic brokerage IIFL.
The REC stock has a 12-month price target of Rs 400, consensus analysts’ estimates compiled by Bloomberg show.
“This deal was completed on the backdrop of the Coal India OFS… The timing of the issue is great, as it comes in the first week of the new fiscal against the usual practice of bunching all the divestment sales towards the last quarter of the financial year,” said Atul Mehra, managing director & Co-CEO, JM Financial Investment Banking.
The share sale was handled by L&FS Broking, JM Financial and Morgan Stanley.
Investor demand for the issue boosts prospects of the Narendra Modi-led government’s plans to raise a whopping Rs 69,500 crore through disinvestment during 2015-16.
Around Rs 41,000 crore of the target is expected to come through PSU disinvestment, and the rest through strategic disinvestment.
