Power Grid FPO subscribed nearly seven times

Appetite strong for good offerings, disinvestment drive to get a boost, say bankers

Power Grid Corporation on Friday got bids for seven times more shares than that on offer as the company's follow on public offering (FPO) closed today.

The state-owned power utility received bids for over 5.2 billion shares (worth about Rs 47,000 crore) as against issue size of 787 million. Power Grid had launched its FPO on Tuesday, at a price band between Rs 85 and Rs 90 per share, to raise as much as Rs 7,000 crore. Over three fourth of the offering was fresh issue, while the remaining was a 4% stake sale of the government.

The retail portion of the FPO was subscribed over two times, while that for high networth individuals (HNIs) received nearly 10 times subscription. The institutional investor category, bidding for which closed on Thursday, was subscribed nine times.

Investment bankers said that the encouraging response to the issue will give a boost to the government's Rs 40,000 crore disinvestment target set for the current financial year. It also signals that there is an appetite for good issuances, they added.

“People complain that there are no investors. This issue has proved once again that there is huge appetite, what is lacking is good offerings,” said Prithvi Haldea, chairman, Prime Database, an IPO tracking firm.

“The offering has seen good response from all categories of investors. The deal only shows for quality issuers there is market,” added V Jayasankar, head equity capital markets, Kotak Investment Banking.

Apart from the strong fundamentals of the company, what also contributed to the successful of the issue was the attractive discount to the secondary market price, said market experts.

Shares of the Power Grid today ended 2.65% higher at Rs 98.85, that's a premium of 9% to the top end of the price band, where the issue is likely to be priced. The Power Grid shares alloted to investors through the FPO are expected to enter the market by December 20.

Experts said that success of the Power Grid offering will help improve sentiment however a revival in the prospectus of the IPO market could be some time away.

“An FPO is largely an arbitrage play. Investor participation depends on the discount offered to the secondary market price. The IPO market revival will only happen with more IPOs start coming and performing. We are some time away for that to happen,” said Haldea.

“Power Grid FPO doing will serve well for the government to push ahead with its disinvestment plan,” said Jayshankar.

The government, which has only raised about Rs 3,000 crore through disinvestment so far this fiscal, is pinning hopes on the two large share sales in Indian Oil Corporation and Coal India.

Market experts also said investors who had short sold the Power Grid stock in anticipation that the price will fall due to the disinvestment were caught on the wrong foot. The stock has gained 7% since the issue has opened.