INDIA BUSINESS WORLD - AUGUST 2006
THE MONTH THAT WAS...

POWERFUL SELLOFF BOOST: GOVT TO SELL 24% VIA IPOs

THE government will reduce 24% stake in some key public sector power companies by offering substantial equity to the public through initial public offers (IPOs). Power companies, as a result, are all set to raise about Rs 3,800 crore through IPOs — expected to hit the market this fiscal.

Incidentally, the Left parties have agreed to the government dilution in profitable PSUs on account of their raising money from the public. The Common Minimum Programme says PSUs will be allowed to raise capital from the market. When the capital that is issued is bought by the investing public, that brings down the government's stake naturally.

In recent years, investors have shown a good appetite for power sector stocks. Therefore, the power ministry has sought the Cabinet Committee on Economic Affairs' (CCEA) approval for diluting 24% government's equity in Power Grid Corporation of India Ltd (PGCIL), National Hydroelectric Power Corporation (NHPC) and Rural Electrification Corporation (REC). It has also sought to offload 10% promoter equity in North-Eastern Electrification Power Corporation (NEEPCO).

PowerGrid, NHPC and REC are aiming to mop up Rs 870 crore, Rs 2,500 crore and Rs 156 crore, respectively, through the proposed IPOs. NEEPCO, however, plans to raise Rs 225 crore through its offer. Government sources have confirmed that the IPOs of power PSUs are being processed for approval. The IPOs are likely to hit the market in the last quarter of this fiscal. The money generated through the IPOs will help the companies to fund their much-needed infrastructure expansion. Unlike in disinvestment, IPO-raised funds could be used by the companies as per the direction of their boards.

Earlier, the government's divestment strategy hinged on PSU IPOs, as was seen in NTPC's case, where the government offloaded some of its stake piggyriding an issue of fresh equity by the company. But now the government plans to go for pure-play IPOs by PSUs due to the Left's objection to any further divestment in profit-making PSUs. The power IPO decision is consequent to this plan.