Public sector major NTPC's follow-on public offer (FPO) managed to scrape through today, but raised questions about the state of the primary markets and the government's disinvestment programme.
A host of initial public offers and follow-on public offers are slated to hit the market in the next few weeks, including that of two government-owned companies--mining major NMDC and Rural Electrification Corporation (REC). The REC issue FPO is just a fortnight away, the NMDC FPO is expected next month and they are expected to raise a combined Rs 18,500 crore.
Vibhav Kapoor, Group Chief Investment Officer, IL&FS, said companies may have to either postpone their public issues or pare valuation expectations if the market remained sluggish.
Subscription to NTPC's FPO was aided mostly by institutional investors. At 6.30 p m the issue of 412.2 million shares was subscribed 1.2 times, with the highest bids coming at Rs 209 followed by at Rs 202.
Detailed data of investor participation was not available when this paper went to press, but investment bankers confirmed that institutional investors accounted for the bulk of the subscription. Till yesterday, the second day of the issue, it was institutional investors that accounted for 320 million shares.
The NTPC share price closed Rs 204.30, down 1.6 per cent on the Bombay Stock Exchange.
NTPC Chairman R S Sharma told reporters in Delhi that he was satisfied with the response to the FPO. "The response has been overwhelming. We expect to mop up close to Rs 8,500 crore. The Qualified Institutional Buyer portion was subscribed 2.18 times. NTPC has demonstrated that it can stand despite falling markets."
Investment banking sources said out of the total bids, around 50 per cent, or 210 million shares, came from two public sector institutions--Life Insurance Corporation and State Bank of India. Officials from the two could not be contacted for comments.
However, primary market experts have a different view. "If one goes by the subscription figures, it is a flop issue,' said Prithvi Haldea, Managing Director, Prime Database.
He added the pricing of the issue was wrong and the French auction process is good for illiquid stock and not for liquid stocks like NTPC.
Mayank Shah, CEO Anagram Capital, said considering NTPC's price in the secondary market, it didn't make much sense for retail investors to subscribe to the FPO since there was little upside in the stock after it lists for lack of major buyers.
Others had a more charitable view. One banker said the NTPC FPO's fate was plain bad luck because it ran into an uncertain market after the benchmark indices fell due to global uncertainties.
Investment bankers said issuers will find it a challenge to price their FPOs when the market is so volatile since bankers and high net worth individuals tend to become cautious in such circumstances. The Sensex fell 10.72 per cent in a month.
Abhay Bhalerao, Director, Equirus Capital, said the high volatility in the markets meant that issuers would need to leave more on the table for investors.
Several smaller initial public offers that predated the NTPC issue saw lukewarm retail participation. In some of these, the institutional investor portion was also low. Non-institutional investors helped these issues to sail through.
Of the six IPOs in the last one week, only D B Realty (issue size: Rs 1,288 crore) did well.
The others just about managed to get fully subscribed. These five companies proposed to collectively mobilise Rs 500 crore at the higher side of price band.
