PFC's size and performance have won it so-called Navratna status, which allows it more autonomy than other state-owned companies.
The share sale will include 172.1 million fresh shares and 57.4 million currently held by the government. The net issue will amount to 17.37% of the post-issue, paid-up equity capital of the company.
The company, which lends to power companies in India, saw its shares fall 1.6% on Monday to Rs.211 each. The benchmark Sensex closed 0.05% higher at 18,528.96 points.
While the current valuation of PFC's shares, at 1.3 times book value, is in line with peers, they have underperformed this year, falling 31% since 1 January. The broader market has fallen 10% this year.
Shares of most infrastructure firms have been hit hard over the past few months owing to fears that rising interest costs will hit loan growth and margins.
PFC's profitability in the three months ended March was below the expectations of analysts, though most have a "buy" rating on the firm on account of its overall performance in 2010-11, the current stock price and the price at which it will sell shares. A 20 April note by R. Sreesankar, analyst at Tata Securities Ltd, put a medium-term price target of Rs.288 on the shares, taking into account the effect of the equity dilution on the financials of the company.
According to Satnam Singh, chairman and managing director of PFC, the net proceeds of the share sale will be used to increase the capital adequacy of the company and strengthen its balance sheet.
Growth in the loan portfolio had seen capital adequacy ratio shrink by a percentage point to 16% in 2009-10. The equity infusion will help the company raise the size of its loan book without falling short of the 15% capital adequacy norm for infrastructure finance companies.
In the year gone by, PFC disbursed loans of Rs.33,000 crore against sanctions of Rs.75,000 crore, the company said. PFC will also appoint professional consultants to explore opportunities in the equity funding of power projects, Singh said. The company is also studying viability of lending to nuclear power projects and will issue guidelines on this soon, Singh added.
The government sold shares in three companies through initial public offerings (IPOs) and in three others through FPOs for a total Rs.22,400 crore in 2010-11. It deferred the FPOs of Oil and Natural Gas Corp. Ltd and Steel Authority of India Ltd partly to meet its divestment target in the current fiscal. Apart from ONGC and SAIL, the government has got cabinet approval to sell shares in Hindustan Copper Ltd.
"Proposals to sell stakes in National Buildings Construction Corp. (NBCC) and Rashtriya Ispat Nigam Ltd (RINL) are awaiting cabinet approval and may be cleared soon," said a senior ministry official who did not wish to be identified.