Pricing dispute, FII apathy force NHPC to defer float

The global turmoil has claimed its first casualty in the Indian capital market. State-owned NHPC, the country’s largest hydro power producer, has deferred its initial public offering (IPO) due to differences over the pricing between the government and investment bankers.

This was the second attempt by the company to enter the capital market. It first filed a prospectus to float an IPO with the Securities & Exchange Board of India (Sebi) last year, but the proposal got stuck over the issue of independent directors as mandated by the listing norms.

The company again filed the prospectus on August 7 this year, which was cleared about 10 days ago. This clearance is valid for three months, during which it is unlikely that the company will be able to float the IPO. The one tangible financial outcome of the exercise has been Rs 2.5 crore paid by the company to Sebi in fees.

After a series of meetings involving senior government officials, NHPC and investment bankers, the government deferred the issue and decided to “wait for the market sentiments to improve”, said a government official who did not want to be identified.

Another key hurdle was that, given the financial turmoil in the US, foreign institutional investors (FIIs) are not expected to participate in the issue. “For such a large issue, it would have been difficult to sail through in the absence of FIIs,” said the government official.

Under the listing norm, 50 per cent of a book-built issue ought to be subscribed to by qualified institutional bidders, a category that includes FIIs and domestic institutions like Life insurance Corporation of India, General Insurance Corporation and other private insurance firms and mutual funds.

Sources said the department of disinvestment insisted that the IPOs be priced above Rs 25 a share, a considerable premium over the book value of Rs 15.40 a share. At Rs 25 a share, the issue would have raised about Rs 4,200 crore.

The investment bankers, on the other hand, suggested that the price band be closer to the book value. “The merchant bankers suggested Rs 15-18 a share, which was not acceptable,” said the government official. At this rate, the issue would have raised no more than Rs 3,000 crore.