FY16 disinvestment: REC OFS oversubscribed

Non-retail category subscribed 1.3 times, retail segment was subscribed nearly 70%

The Rs 1,500-crore share sale in power finance company Rural Electrification Corporation (REC) has got full subscription. 

As per data provided by stock exchanges, the 49.37 million-share offering had received 59.33 million bids as on 10:45 am. The non-retail investor category was subscribed 1.3 times, while the retail segment was subscribed nearly 70%. About 20% of the offer for sale (OFS) is reserved for individual investors making application of up to Rs 200,000 lakh.

Most bids in the retail and non-retail category came at Rs 317.3 and Rs 315.09 respectively, data on the BSE showed. The government has set a floor price of Rs 315 per share for divesting 5% stake in REC. Retail investors are being offered at additional 5% discount.

Following the stake sale, the government shareholding in REC will come down from 65.64% to 61.64%.

Shares of REC were trading at Rs 327, up 1.6% compared to its previous day close.

“The floor price of the OFS implies an inexpensive valuation of less than one time FY17 P/ABV which we believe is an attractive entry point for long term investors. Recommend subscribe with 12-month price target of Rs 392,” said domestic brokerage IIFL in a note today.

IL&FS Broking, JM Financial and Morgan Stanley are managing the share sale for the government.

REC will be the first company in which the government is divesting its stake as a part of 2015-16 disinvestment programme.

The Narendra Modi government plans to raise Rs 69,500 crore by selling stake in government companies during 2015-16. Around Rs 41,000 crore of which is expected to come through PSU disinvestment and another Rs 28,500-crore through strategic disinvestment.