State-owned ITI withdraws Rs 1,300 cr FPO due to poor market response

ITI Ltd on Wednesday withdrew its Rs 1,300-crore follow-on public offering (FPO) due to poor response. The move is a rare instance of a government-owned company failing in its fund raising exercise. ITI is a technology solutions provider for the telecom sector. While the FPO wasn’t part of government’s disinvestment programme, it underscores the challenges when it comes to diluting stakes in out-of-favour PSUs.

“The company has decided to withdraw the issue, due to the prevailing market conditions,” ITI said in a statement. The FPO had garnered only 62 per cent subscription, data provided by stock exchanges showed.

ITI had extended the closing data twice and also had lowered the price band to attract investors.

The FPO, originally was to close on January 28. The closing date was first extended to January 31 and later to February 5. The price band was lowered to Rs 71 to Rs 77 per share from earlier band of Rs 72 to RS 77 per share.

Shares of ITI rose nearly 5 per cent to end at Rs 84 on Wednesday as the share sale overhang ended. Through the FPO, ITI was looking to issue 181.8 million fresh shares. The issue would have led to dilution of 20 per cent, weighing on the secondary market price.

Currently, the government holds 90 per cent stake in the company. ITI is valued at Rs 7,550 crore currently

BOB Capital Markets, Karvy Investor Services and PNB Investment Services were the investment banker handling the FPO.

In the past, government-owned entities such as LIC and SBI have seen bailed out PSU share sales. The failure of ITI’s FPO indicates that the government wanted the fund raise to be supported by organic demand, said bankers.

Analysts said steep pricing and uncertain business outlook could have hurt investor demand.

“Besides the pricing, investors were concerned over the drop in profitability of the company last financial year and the business outlook given ITI maximum business comes from state-owned telecom companies which aren’t in best shape,” said an analyst.

ITI was looking to utilize the FPO proceeds to retire debt and to funds its working capital.

Analysts said ITI will have to look of other ways of fund raising such as private placement.