Poor response has prompted ITI to withdraw its Rs 1,300-crore follow-on public offer (FPO), a move that is unprecedented by a government company.
While the FPO wasn’t part of the government’s disinvestment programme, it underscores the challenges when it comes to diluting stakes in public sector undertakings that are not in the limelight.
“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 date twice and also had lowered the price band to attract investors. The FPO, was to originally 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-Rs 77 per share from earlier band of Rs 72-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.
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 bankers to the FPO.
In the past, government-owned entities such as Life Insurance Corporation (LIC) and State Bank of India (SBI) had bailed out PSU after a share sale. The failure of ITI’s FPO indicates that the government wanted to raise funds 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 in the last financial year and the business outlook falling. Most of ITI’s business comes from state-owned telecom companies which aren’t in great shape,” said an analyst.
ITI was looking to utilise the FPO proceeds to retire debt and fund its working capital.
Analysts said ITI will have to look for other means of fundraising, such as private placement.