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NTPC FPO not fully subscribed on day 1

A USD 1.8 billion share sale in NTPC, India's leading power producer, was three-quarters subscribed on its first day, with solid institutional interest offset by an anaemic response from retail investors on Wednesday.

Institutional investors bid for 1.55 times their initial allocation of 50% of the 412 million shares put on offer by the government, but the retail portion barely drew a response, one banker directly involved in the deal told Reuters.

The share sale was covered 0.77 times, the banker said.

Retail investors have been allocated 35% of the share issue. However, if that allocation is not fully subscribed the shares are sold to other investors.

Retail investors have shied away from most recent Indian share sales, including initial public offerings from JSW Energy, DB Realty and Godrej Properties, with analysts blaming rich valuations.

Demand from institutions has helped more than cover each major share sale, although some small issues have not been fully covered.

The government is selling 5% in NTPC, which generates a fifth of India's power, the first of several planned sales this year in state-run firms such as miner NMDC, Rural Electrification Corp and Satluj Jal Vidyut.

The offering runs through Friday, and a floor price of Rs 201 per share has been set.

In 2009, the government raised USD 1.8 billion by selling shares in NHPC and Oil India, as it sought to fund spending and drive Asia's third-largest economy without widening a yawning fiscal deficit.

Shares in NTPC, valued at USD 36.8 billion, closed up 1.8% at Rs 209.80 on Wednesday in a Mumbai market that rose 2.1%. The shares had risen 30% in 2009, lagging an 81% jump in the benchmark.

JPMorgan, Citigroup, Kotak Securities and ICICI Securities are lead managers for the offer.

Source: Reuters
Courtesy moneycontrol.com

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NTPC FPO opens; should you subscribe?

India's largest thermal power production company, NTPC's FPO (follow on public issue), which has opened for subscription, has been subscribed 0.7 times so far, reports CNBC-TV18.

The qualified institutional investors (QIB) book was fully subscribed. Most bids came in at Rs 209 per share on NSE as against floor price of Rs 201 per share.

Sources told CNBC-TV18 that SBI and LIC have put in Rs 4,760 crore in NTPC FPO.

While talking to Moneycontrol.com, experts and brokerge houses advised investors to subscribe to the issue. However, only Investment Advisor, SP Tulsian said one should skip the issue.

"With this floor price, response is likely to be lukewarm in non-QIB category which will spoil the party going ahead for PSU divestment, especially via FPOs. Considering all this, it is advised to skip the issue, looking at the volatility in the secondary market chances of price shipping below floor price is quite high. It is better to buy the stock from the secondary market, when it slips below Rs 200, instead of considering FPO," he said.

However, Manish Bhatt of Prabhudas Lilladher advised investors to subscribe to the issue. "The issue looks to be good. If one holds the stock with one-year plus horizon, will get 30% return at least," he said.

In an interview with CNBC-TV18, R Venkat Subramanian, CIO, Infina Finance said for large investors who were looking for deploying significant amount of cash at one go, this price now became more attractive. "It's an opportunity for large institutions who want some exposure in that area. It's reasonable to assume that it would get it done in the range of Rs 200-220 and that is a reasonable long-term entry point for large institutional investors to buy that stock. It is not something that is going to give you large returns in the short-term. But for large investors looking for deploying significant amount of cash at one go, this price now becomes more attractive than what we were earlier talking about."

Reliance Money, in its report, said, "At the floor price of Rs 201, NTPC is priced at 2.6x of price to book value. Post dilution the ROE stands at 12.3%, better than its listed peers. Nevertheless, in view of its impressive track record, merchant power capacity addition and prolific avenues of nuclear power generation augers well for the company going ahead, hence we recommend investors to subscribe to the issue."

"NTPC – The India’s largest Thermal Power Production Company is also Nav-Ratna company conferred by Govt. of India (GOI). The company is coming out with FPO at a price of Rs 201 (LTP on Feb. 2, 2009 - Rs. 206) to meet GOI’s divestment decision. The stock is recommended for portfolio with long-term perspective and target of Rs 250-275 in next 12-15 months when compared to its Industry peers," said Swastika Investmart.

About the issue

The employees will get the shares at Rs 191/share, a discount of Rs 10/share to floor price. Of the FPO, a total of 4,273,220 equity shares are reserved for NTPC employees.

The minimum bidding lot is of 28 shares and in multiples of 28 shares thereafter.

The offer marks a divestment of 5% in NTPC by the President of India acting through the Ministry of Power. Prior to this Offer, the GoI owned approximately 89.5% of NTPC’s Equity Share capital.

ICICI Securities Limited, Citigroup Global Markets India Private Limited, JP Morgan India Private Limited and Kotak Mahindra Capital Company Limited are the book running lead managers to the Offer and Karvy Computer Share Private Limited is the Registrar.

Source: Moneycontrol.com
Courtesy moneycontrol.com

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Investors smell a profit, sell NTPC futures, apply in FPO

MUMBAI: Open interest in NTPC February futures shot up 10 per cent on Wednesday to 2.57 crore shares, as high net worth individuals (HNIs) and retail investors attempt to pocket risk-free gains by going short on the futures and hedging that position by applying for an equivalent amount of shares in the ongoing follow-on public offering (FPO) of the utility company.

The February futures closed at Rs 206.70 on Wednesday, a discount of Rs 2.55 to the stock price of Rs 209.45. There was some pressure on the stock as well at higher levels, as many retail investors and HNIs sold a part of their existing holdings, in the hope of buying back that portion through the FPO route.

In the cash-futures arbitrage, a trader short sells the futures which are trading at a premium to the spot (shares), and buys an equivalent quantity of the underlying shares. In this case, NTPC shares are quoting at a premium to the futures. But the trader is counting on the shares that will be allotted to him at Rs 201 apiece, in the FPO, a substantial discount to the futures price.

In such a form of arbitrage, the difference between the futures and the stock price is the spread that the investor makes. In the case of NTPC, if the trader sells the futures at Rs 207 and is allotted the stock at Rs 201, he has locked in a profit of Rs 6 per share.

On getting the allotment, the traders will reverse both positions. He will square off short positions in the futures segment, and sell the shares that he has been allotted. If the retail portion of the book is subscribed more than one time, HNIs and retail investors will not be able to hedge their short positions entirely, as they will be allotted lesser number of shares than they had bid for.

Dealers tracking the counter say that the arbitrage play could be nearing its fag end, as many traders have been going short on NTPC futures during the past few sessions.

"At Wednesday’s prices, there is a good risk-free spread still available; but it may not last for long," said an old-time broker, who did not want to be named. Brokers have cautioned their HNI and retail clients against taking up naked short positions in the stock at these levels.

"Unless the overall market conditions worsen dramatically, the stock is likely to find support at Rs 201. In fact, players who had initiated directional short positions last week (unhedged short positions, betting on a decline in the stock price) should start covering up their positions, considering choppy market conditions and the fact that they are already sitting on a tidy profit," said the broker.

NTPC’s 41.22 crore FPO opened for subscription on Wednesday, and 70 per cent of the book has already been filled up. Bidding for the institutional portion of the book is through the French auction method, in which shares will be allotted to successful bidders starting from the highest bid downwards. Retail and HNIs will get the shares at Rs 201, which has been set as the floor price for the auction.

ICICI Bank has put in a bid for three crore shares at Rs 210, the highest bid so far, investment banking sources told ET NOW. India’s state-owned insurance giant LIC is learnt to have bid for 20.4 crore shares, the entire institutional portion, at Rs 209 per share. Analysts expect the NTPC stock to start firming up closer to the day of allotment, as traders rush in to cover their short positions.

Source: ET Bureau
Courtesy economictimes.indiatimes.com

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NTPC fixes FPO price at Rs 201 a share

NEW DELHI: The government has priced the followon public offer of NTPC at Rs 201 per share, at a 5% discount to Monday’s closing price, hoping to attract individual investors who showed a lack of interest in some of the high-profile offers that hit the market in recent months. ET NOW was the first to announce the price of the follow-on offer.

The discount may ensure better participation of retail investors who enjoy a quota of 35%, said bankers. “In case the market price holds at the current level of Rs 211 and above, it will have good response from retail investors. This, in turn, could increase the auctioning price,” said a banker, who asked not to be named. Another 15% of the issue is reserved for high net worth individuals.

The government will mop up a minimum of Rs 8,286 crore from the sale of 41.22 crore shares, representing 5% of the existing paidup capital of NTPC, India’s largest power producer. The proposed offer will open for subscription on February 3. Since this is the first issue through the French auctioning route, the government mobilisation may go up significantly . Half of the issue will be sold through auctions.

The price is significantly lower than the government’s expectation of around Rs 265 per share. The government was hoping to raise Rs 11,000 crore from NTPC sale.

The previous two issues from state-owned companies failed to elicit a good response from retail investors, though they received an overwhelming response from institutional investors. The retail portions of Oil India and NHPC issues were subscribed only 1.76 times and 2.97 times, while the issues were oversubscribed 31 times and 24 times, respectively.

At the time of giving the mandate, bankers had assured the government that they would be able to sell the shares at Rs 250 per share or above, provided the market remained bullish, said a senior NTPC official.

On Monday, the bankers recommended a discount of 8% to the current price of Rs 211 per share. Based on the recommendations of the four bankers, the empowered group of ministers (eGoM), which met on Monday evening, agreed to give a 5% discount to the current market price. “NTPC issue should not be equated with recent public offerings of other power companies that failed to make major gains in trading. The company’s shares have been in the market for some time and has given good returns to investors,” said the government official quoted earlier.

NTPC last tested the market with its initial public offer in October 2004. That time the public offer involved issue 5.25% of fresh equity shares and sale of equivalent (5.25%) number of shares held by the government. The issue raised over Rs 5,000 crore.

Post-issue, the government holding in the company came down to 89.5% of the expanded capital of the company, which will come down further to 84.5% after the proposed sale. NTPC, which has an installed capacity of over 31,134 mw, is expected to add another 22,000 mw by March 2012.

Source: ET Bureau
Courtesy economictimes.indiatimes.com

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