India races to sell $730 million stake in NTPC ahead of budget

MUMBAI (Reuters) - India will sell a 5 percent stake worth about $730 million in its top power producer NTPC Ltd, as the government races against time to raise funds via asset sales to meet this year's fiscal deficit target.

The NTPC share sale will begin on Tuesday, the government said, and if successful, will be the biggest divestment by the state in about six months after a $1.4 billion equity sale in Indian Oil Corp in August.

The government, which owns almost three quarters of NTPC, will sell about 412.3 million shares by auction to institutional and retail investors on the country's two main stock exchanges, according to a regulatory filing on Monday.

The floor price for the auction has been set at 122 rupees a share, a discount of about 4 percent to NTPC's closing price of 127 rupees on Monday.

New Delhi is set to miss its asset sales target for the sixth straight year, having so far raised less than a fifth of the 685 billion rupee ($10 bln) goal for the current fiscal year, which ends in March.

Finance Minister Arun Jaitley is due to present his budget for the next fiscal year on February 29, but a slowdown in economic growth has already made it tougher for him to meet a target to trim the fiscal deficit to 3.5 percent of GDP next year, from 3.9 percent budgeted for this year.

India's recent divestment deals have drawn little interest from either foreign or domestic fund managers due to concerns about state companies' growth prospects. Recent swings in the stock market have also prompted the government to delay some stake sales as it does not want to sell too cheaply.

The Indian Oil sale in August was rescued by state-run Life Insurance Corp (LIC) which bought 86 percent of the refiner and fuel retailer's shares on offer.

The NTPC auction will be open for funds on Tuesday and Wednesday, while individual investors can put in bids on the last day.

($1 = 68.5755 Indian rupees)

(Reporting by Devidutta Tripathy; Editing by Sumeet Chatterjee and Susan Fenton)