PowerGrid follow-on public offering subscribed 7 times

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

PowerGrid Corporation of India got bids for seven times more shares than that on offer as the company's follow-on public offering (FPO) closed on Friday. The state-owned power utility received bids for over 5.2 billion shares (worth about Rs 47,000 crore) against an issue size of 787 million. PowerGrid had launched its FPO on Tuesday at a price band between Rs 85 and Rs 90 a share to raise as much as Rs 7,000 crore. Over three-fourth of the offering was fresh issue, while the remaining was a four per cent stake sale of the government.

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

Investment bankers said 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 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 of 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) at Kotak Investment Banking. Apart from the strong fundamentals of the company, what contributed to the success of the issue was the attractive discount to the secondary market price, said market experts.

Shares of the PowerGrid ended 2.65 per cent higher at Rs 98.85 apiece on Friday. That's a premium of nine per cent to the top end of the price band, where the issue is likely to be priced. Shares allotted to investors through the FPO are expected to enter the market by December 20. Experts said the success of the PowerGrid offering will help improve sentiment. However, a revival in the prospects of the IPO market could be some time away, they added.

"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.

According to Jayasankar of Kotak Investment Banking, the PowerGrid FPO doing well will help the government push ahead with its disinvestment plan. The government, which has only raised about Rs 3,000 crore through disinvestment so far this financial year, is pinning its hopes on the two large share sales in IndianOil Corporation and Coal India. Market experts said that the investors, who had short-sold the PowerGrid stock in anticipation that the price would fall due to the disinvestment, were caught on the wrong foot. The stock has gained seven per cent since the issue has opened.