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Home News Power Sector News REC shares went down - After effect of poor NTPC show

REC shares went down - After effect of poor NTPC show

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DisnvestmentThe UPA government is looking into the trading data for the shares of Rural Electrification Corporation (REC) to see if there is a deliberate attempt to hammer down the stock price of the company ahead of is follow on public offer or FPO. As per the trading data of REC shares being examined by the government, corporate houses have sold significantly in the PSU shares during last one week, a government official told. In the last 10 trading sessions, REC’s stock has witnessed heaving selling pressure leading to a near 10% drop in price to Rs 223 as against the closing price of Rs 247 on February 1. Over the same period, National Stock Exchange’ Nifty index has remained almost unchanged.

Domestic mutual funds, overseas corporate bodies and foreign institutional investors (FIIs) have not indulged in heavy selling, the data shows. The government will examine company wise detail of selling pattern to find the intent of sellers, the official said.

REC is scheduled to enter the market with follow on offer (FPO) of 17.17 crore equity shares. Based on the preliminary road show in January and its market price of around Rs 260 per share, the company was planning to price the issue at around Rs 250 per share.

After the sudden change in the market sentiment, the issue is expected to be priced at much lower levels.
The government is concerned as a similar drop in share price of NTPC ahead of its FPO resulted in a poor response to the issue from FIIs and domestic retail investors. In fact, the state-owned insurance firms and banks had bailed out NTPC’s Rs 8,300 crore FPO.

The large corporate sale could be also due to concerns over equity dilution and availability of large number of shares resulting in poor price performance in the coming months.

The government would want to rule out price manipulation as it is counting on aggressive disinvestment to keep the fiscal deficit under control. The government is likely to target Rs 30,000 crore from disinvestment in the next fiscal.

According to government officials, the REC issue may be priced at 10% discount to the underlying price in the secondary market. “In case of NTPC issue the discount was only 5%, as a result, we did not see public participation. Since these are the issue of listed entities, the issue needs to be attractively priced so that the retail investors participate in the process,” said an official.

The government will divest 5% of its stake in the issue, while 15% fresh equity will be raised by REC. This translates into a fresh issue of 12.84 crore equity shares by the company and an offer for sale of 4.29 crore-equity shares of the government. At the current market price, the issue will be worth Rs 4,000 crore.

Source- Economic times

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