NHPC IPO's grey premium hit by market uncertainty

After being subscribed by more than 23 times, the state-run National Hydroelectric Power Corporation’s (NHPC) initial public offer (IPO) has been hit by uncertainty in the stock market.

The IPO’s grey market premium has slipped by almost half — from Rs 13 to Rs 6 and Rs 7 — since the closure of the issue on August 12. The issue may list on the exchanges in the last week of August.

According to grey market operators, the other reason for the decline in premiums of big IPOs is the profit-booking by players in the grey market itself.

The grey market is an unofficial market for IPOs and acts as a price discovery mechanism before an issue opens for subscription. It mostly operates in Ahmedabad, Rajkot, Kolkata and a few other smaller cities. The players in this market include big brokers, high net worth individuals (HNIs) and market operators.

These players, who purchased shares in the grey market from subscribers at a premium, are booking profits in the grey market itself rather than waiting for the shares to list on the stock exchanges. Premiums were also falling as a large number of players, mainly HNIs who had used margin funding to subscribe to the public issue, could book profits on the listing day.

NHPC is expected to raise over Rs 6,000 crore at the upper end of the price band. The issue is priced in the range of Rs 30-36. The IPO, biggest since the Reliance Power issue in January 2007, was subscribed 23.5 times. The HNIs portion was subscribed 56 times.

The pattern of falling grey market IPO premiums was observed in past high-profile IPOs, including Reliance Power, Reliance Petroleum, DLF and Mundra Port Special Economic Zone.