NTPC may be first to run on FPO fast track

THE government will use the fast track route provided by the market regulator for the first time to raise about Rs 11,000 crore through sale of shares in NTPC next month, a move that could be a precursor of several such issues by state-run companies. The country's largest power generation company will file the prospectus in the third week of January and the issue will be open for subscription immediately, said two officials involved in the procedure. 

   "The government has set January 23 as the target for the issue to open," said one official who asked not to be named. The government is looking to raise as much as possible before March 31 to bridge the large fiscal deficit of 6.8% of the country's national income. On December 11, market regulator Sebi had relaxed the guidelines for follow-on public offers (FPO). This will facilitate the forthcoming share sales in by state-run blue chip firms. The government has appointed four investment banks – JP Morgan, Citi, Kotak Mahindra Capital Company and I-Sec — for the issue. 

   Due to fast tracking of this issue, the proposed FPO of Rural Electrification Corporation (REC), which was expected to tap the market before NTPC, will have to wait. REC plans to raise around Rs 4,500 crore in which the government's portion will be around Rs 1,200 crore. But in the case of NTPC, the government will raise around Rs 11,000 crore by divesting 5% of its stake. "The government expects a substantial premium over the current market price of NTPC," said a banker advising the company. 

   The REC issue could not use the fast track route as it the company does not meet the minimum three year listing norm. It had filed the prospectus with Sebi on December 4 and is awaiting approval. The NTPC issue will also set the trend for the auction route. This will be the first FPO in which the portion subscribed by Qualified Institutional Investors (50% of issue size) will be auctioned. The government will have bridge a large fiscal deficit, which is 6.8% of the country's national income. 

   The guidelines issued on December 11 have brought down the average market value of public shareholding of the issuing company to a minimum of Rs 5,000 crore from the earlier requirement of Rs 10,000 crore. If public share holding in a company is less than 15% of the issued capital, the annualized trading turnover of its equity shares need to be 2% of the weighted average number of its shares available under free float in the previous six months. 

   A leading banker said this low benchmark will help companies with low public float such as NMDC, whose float size is only 1.62% of its paid up capital, to enter the market under the fast track route. The government has initiated the process of divesting 8.38% stake in NMDC and set to appoint six banks for the issue in the next couple of days. Since the current market value of NMDC is around Rs 1,60,000 crore, the proposed divestment of 8.38% stake may fetch Rs 14,000 crore to the government. The regulator has also allowed companies that have not complied with the provisions of listing agreement relating to composition of board of directors for any quarter during the last three years, but are in compliant at the time of filing of the document with the registrar or stock exchanges, to enter the market under the fast track route.