Disinvestment deal: NTPC share-sale may fetch govt Rs 13,800 crore

The government on Tuesday will sell up to 10 per cent in power utility NTPC for Rs 13,800 crore in one of the biggest disinvestment deals. The two-day offer for sale (OFS) will have a core component of 412 million shares (five per cent stake), with a greenshoe option to sell another five per cent. If the OFS is fully subscribed, it will be the third-biggest divestment deal ever by the government.

So far, the biggest share-sale by the government is the Rs 22,500-crore OFS in Coal India in 2014-15, followed by a Rs 15,200-crore initial public offering (IPO) of the coal miner in 2010.

The Centre has fixed the base price for the OFS at Rs 168 per share, close to a three per cent discount to Monday’s close. Retail investors will get a special discount of five per cent on the allotment price.

The government currently owns a 69.7 per cent stake in the company. After the issue, the stake could come down to 59.7 per cent. NTPC is the fourth-largest public sector undertaking (PSU) in terms of market capitalisation, after Oil and Natural Gas Corporation, State Bank of India, and Coal India. The market capitalisation of the company is nearly Rs 1.43 lakh crore.

An investment banker handling the issue said the Centre was banking on aggressive buying by domestic mutual funds.

The participation of Life Insurance Corporation could be limited, as it owns 11.7 per cent in the company.

According to the Insurance Regulatory Development Authority of India rules, an insurance company cannot own more than a 15 per cent stake in a company.

The share-sale is coming at a time when overseas investors are not very keen on the stock. In the past one year, they have trimmed their stake in NTPC by 100 basis points to 11.24 per cent.

Analysts say the share-sale is attractive for long-term investors, as the company is expected to see a gradual recovery in its earnings, which could soon lead to a re-rating.

According to Jefferies, NTPC’s earnings are expected to see a compounded growth of 16 per cent over the next two years, implying a good upside for the stock.

“Operational efficiency improvements, capacity additions and coal mining contribute to positive surprise potential. Progress on State Electricity Board restructuring will help valuations of NTPC, as it improves long-term growth prospects and monetisation potential for the power sector,” said Lavina Quadros, senior vice-president (equity research), Jefferies.

The success of NTPC OFS would be crucial for helping the government in meeting its ambitious divestment target for the financial year. The Centre plans to mop-up Rs 72,500 crore through divestments this year. Of this, it has managed to garner Rs 9,302 crore so far during the year. While the initial share sales in Housing and Urban Development Corporation and Cochin Shipyard fetched Rs 1,207 and Rs 470 crore, respectively, the sale of stake in Larsen & Toubro-owned through Specified Undertaking of the Unit Trust of India (Suuti) fetched Rs 4,153 crore.

Investment bankers handling various PSU mandates say the government is lining up a few big-ticket issuances in the coming months. To begin with, state-owned insurers General Insurance Corporation (GIC Re) and New India Assurance will be coming up with their IPOs worth Rs 15,000 crore in the next few months. The government is also planning to divest around five per cent stake in Coal India through the OFS route, bankers said.