Tuesday 19 February 2008

Rural Electrification IPO Is Subscribed 2.13 Times

Rural Electrification Corp., the state-owned lender to power projects in India's villages, drew bids for all shares in an initial sale, underscoring demand for energy stocks after Reliance Power Ltd. slumped on its debut.

Investors ordered 333 million shares, for at least $750 million, as of 4 p.m. in Mumbai, according to the National Stock Exchange. Rural Electrification plans to raise as much as 16.4 billion rupees ($411 million), to strengthen capital and improve ``borrowing capacity,'' according to its share-sale document.

The share sale is a test of investor appetite for Indian power stocks after shares of billionaire Anil Ambani's Reliance Power dropped as much as 21 percent on listing last week. The company's $3 billion offering, the country's biggest, was sold out within a minute. National Hydroelectric Power Corp. Ltd., Jaiprakash Power Ventures Ltd. and JSW Energy Ltd. have sought regulatory approval to sell shares.

``The share sale was attractively priced, so it's no surprise it sold well,'' said Kashyap Jhaveri, an analyst at Emkay Share & Stock Brokers in Mumbai who recommends investors subscribe to the share sale. ``This country will see at least $260 billion invested in power over the next five years, so growth in volumes won't be a problem at REC.''

India's government plans to add 78,577 megawatts of capacity in the five years to March 2012 to partly bridge a 13 percent shortfall in peak demand. About 400 million Indians do not have access to electricity, according to the United Nations' Human Development Report of 2007.

Reliance Compensation

Reliance Power rose as much as 12 percent yesterday after the company said it would compensate investors for the drop in share prices. The stock fell 0.1 percent to 413.3 rupees in Mumbai today and was 8.2 percent short of the IPO price of 450 rupees.

Rural Electrification is offering shares in a price band of 90 rupees to 105 rupees. The 156.1 million shares on offer will account for 18.2 percent of the lender's post-issue capital. The holding of the government, which fully owns the company, will be reduced to about 81.8 percent. IL&FS Investsmart Ltd., ICICI Securities Ltd. and SBI Capital Markets Ltd. are managing the share sale.

Rural Electrification will reserve 3.9 million shares for employees, leaving 152.2 million shares for the public.

Power Finance Corp. raised 9.97 billion rupees and Power Grid Corp. of India 29.8 billion rupees last year after India's cabinet in November 2006 approved a proposal to sell shares in state-run companies to help them access funds for expansion.

The government's decision to sell shares in the three companies was taken after informing India's communist parties about the plan. India's ruling coalition depends on the communist parties for its parliamentary majority.

India's ruling coalition and its allies have a common agenda that says profit-making companies will not be privatized. The government has said it is open to selling shares in such companies while retaining a controlling stake. The left parties say this amounts to ``creeping privatization.''