REC follow-on issue subscribed 60% on Day 2

The follow-on public offer (FPO) of Rural Electrification Corporation (REC) received bids for only 60 per cent of the shares till today, the offer’s penultimate day. The response from retail investors was subdued. This despite the fact that the shares are available at a discount of more than 5 per cent to the price in the secondary market.

According to National Stock Exchange (NSE) data, the issue was subscribed 0.59 times till 5 pm today. The issue received bids for 101.6 million shares, as against 171.7 million shares on offer, at a floor price of Rs 203 per share. Within the institutional portion, the largest number of bids (for 50.5 million shares) was at Rs 204. Bids for 32.5 million shares were received at Rs 205. Interestingly, bids for 2.14 million shares have been submitted at Rs 215, the highest so far.

The market is abuzz with talks that the participation in the qualified institutional buyer (QIB) portion is similar to that of National Thermal Power Corporation’s (NTPC’s) recent FPO. Banks and public sector insurance companies, including Life Insurance Corporation, are said to have made bids at a time when most foreign institutional investors are staying away from disinvestment issues. The trend is due to the fact that the shares are being offered at only a marginal discount to the current market price.

Meanwhile, REC’s shares lost marginal ground to close at Rs 214.10 on NSE. In the derivatives segment, the stock is available at a slight discount (Rs 212.65). Dealers tracking the counter say many investors have been going short on the stock, expecting a further fall.

The theory stems from the fact that shares of NTPC took a beating after its FPO price was announced. Reports that the retail segment is unlikely to be fully subscribed are also leading to many small investors shorting in the futures segment. Under-subscription will lead to confirmed allotment to all the bidders in the retail segment.