Govt plans to divest NTPC stake

NEW DELHI: The government plans to divest 4.75 per cent of its stake in NTPC Ltd, the country's biggest power generation utility, through a public offer that could fetch it nearly Rs 6,000 crore.

Power Ministry, acting on a request from the state-run firm, has approached the Department of Disinvestment in Ministry of Finance for approval of a Follow on Public Offer (FPO) of 4.75 per cent shares, official sources said.

NTPC had a few years back proposed an initial public offering (IPO) of 24 per cent. But in February 2004, the government allowed NTPC to go for an IPO of 10 per cent of its paid-up capital in one or more stages to augment resources.

The company chose to go for an IPO of 5.25 per cent, leaving balance 4.75 per cent of approved IPO for later date.

The IPO of 5.25 per cent was tagged with government divesting an equal shareholding. Subsequent to the offer, government shareholding in NTPC fell to 89.5 per cent from 100 per cent.

While the IPO in 2004 was priced at Rs 62 to raise about Rs 5,400 crore, the company's current share price is hovering at Rs 166. Based on this price, the government could get about Rs 6,000 crore with the new offer of around 35 crore shares.

Sources said NTPC has stated that as a result of low level of free float, turnover of the shares of the company was quite low. Besides, for listing the company in National Stock Exchange's NIFTY and MSCI, it was required to have a free float of at least 12 per cent and 15 per cent respectively.

The increase in the free float would result in increased trading in NTPC shares, the company said in its proposal. "It is anticipated that this would result in better price for the NTPC shares in the stock market, which in turn, will improve the valuation of the company."

After the FPO, government shareholding in NTPC would come down to 84.75 per cent from the present level of 89.5 per cent.

Sources said NTPC has stated that the visibility of the company among foreign equity investors would have a favourable impact on debt investors. This would result in reduction in the cost of borrowings to be made from the foreign markets.

The low cost of borrowing would, in turn, result in lower capital cost and consequently a lower tariff for consumers.

NTPC stated that it did not find it appropriate to increase the equity base through fresh issue as it already had the highest paid up capital among the listed companies in the country. Besides, any increase in share capital would reduce the Earning Per Share (EPS).

Further, the projections made for funding the future capital expenditure requirements indicate that internal resources of the company were adequate, NTPC said suggesting government divestment of its stake in the follow-on offer.