Disinvestment agreement: NTPC sales action can get govt Rs 13,800 crore

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The government will sell up to 10 percent on Tuesday at the NTPC utility for Rs 13,800 crore in one of the largest divestments. The two-day sale offer (OFS) will have a main component of 412 million shares (five percent stake), with a greenshoe option to sell another five percent. If the OFS is fully subscribed, it will be the third largest disinvestment agreement ever made by the government.

So far, the biggest government share sale is Rs 22,500 crore of SFO in Coal India in 2014-15, followed by an initial public offering of 15,200 rupees of coal mining crore in 2010.

The Center has set the base price for the SFO at 168 rupees per share, close to a three percent discount at the end of Monday. Retail investors will get a special discount of five percent on the allotment price.

Currently, the government holds a 69.7 percent stake in the company. After the issue, the stake could drop to 59.7 percent. NTPC is the fourth public sector company (PSU) in terms of market capitalization, after the Petroleum and Natural Corporation, State Bank of India and Coal India. The market capitalization of the company is almost Rs 1.43 lakh crore.

An investment banker who handled the problem said the Center was betting on the aggressive purchase of domestic mutual funds.

Life Insurance Corporation’s stake may be limited as it owns 11.7 percent in the company.

According to the Insurance Regulatory Authority Development Authorities of India standards, an insurance company can not own more than a 15 percent stake in a company.

The stock sale is coming at a time when foreign investors are not very interested in stocks. In the last year, they have reduced their participation in NTPC by 100 basis points to 11.24 percent.

Analysts say the stock sale is attractive to long-term investors as the company is expected to see a gradual recovery in its earnings, which could soon lead to a new rating.

According to Jefferies, NTPC’s earnings are expected to see compounded growth of 16 percent over the next two years, implying a steep rise for stocks.

“Improvements in operating efficiency, capacity additions and coal extraction contribute to a potential for positive surprise. Progress in restructuring the State Electricity Board will help NTPC valuations, as it improves prospects for long-term growth and monetization potential for the electricity sector, “said Lavina Quadros, Jefferies.

The success of NTPC SFOs would be crucial in helping the government meet its ambitious divestment goal for the fiscal year. The Center plans to clear Rs 72,500 crore through divestments this year. Of this, it has managed to raise Rs 9,302 crore so far during the year. While initial sales of shares in the Housing and Urban Development Corporation and Cochin Shipyard raised Rs 1,207 and Rs 470 crore, respectively, the sale of stake in Larsen & Toubro-owned by the Specified Company of the Trust Unit of India (Suuti).

Investment bankers handling a number of PSU mandates say the government is lining up some issues of big bills in the coming months. To begin with, state insurers General Insurance Corporation (GIC Re) and New India Assurance will come with their initial public offerings worth 15,000 rupees in the coming months. The government also plans to shed five percent stake in Coal India via the OFS route, the bankers said.

* Sale of state property through Specific Commitment of Indian Trust Unit (Suuti); OFS: Offer for sale; IPO: Initial public offering; Source: Department of Investment and Management of Public Assets