The cold response to the Hindustan Copper share sale by foreign institutional investors, despite pricing the issue at a discount to its market price, has put the government in a fix.
The government wants to raise Rs 13,000 crore (Rs 130 billion) by selling 9.5 per cent stake in NTPC and around Rs 7,000 crore (Rs 70 billion) by offloading 10 per cent in NMDC.
Estimates show if it has to raise the targeted sum, NTPC shares would have to be sold at not below Rs 170 a share, with Rs 179 a share for NMDC. Currently, shares of NTPC and NMDC are ruling at a discount of 6.35 per cent and eight per cent, respectively, to these estimated prices for the issue.
Given the disconnect between the government's and the market's expectations about issue pricing, bankers and analysts said uncertainty had heightened about the outcome of these proposed share sales.
"In an offer for sale, the discount to the prevailing market price is the most important factor for the success of an issue. If the discount is not right, then buyers will not come," said Jagannadham Thunuguntla, head of research, SMC Global Securities.
"The government is not likely to come out with huge discounts. They might end up banking on LIC (Life Insurance Corporation, a government-owned entity) to bail them out if the issue is not getting a good response."
The recent Hindustan Copper issue, priced at a 41 per cent discount to the market price, was subscribed by state-owned insurance firms and banks. But, this was an exception, given the thin floating stocks - 0.4 per cent - of the company in a market that had pushed up its share price.
Analysts said there was no scope for any discount in the NTPC
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