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NTPC - FPO

The NTPC Follow on Public Offere was fully subscribed (overall -1.2 times and the retail sector 0.25 times) - Thanks to LIC and SBI for pitching in to save the dignity of this issue. While the below average issues are over-subscribed, the fundamentally strong issue like NTPC is not even subscribed by the public. Why? Let me share my thoughts on the same and would like others also to share their views.

(1) French auction method
Under this method the highest bidders get a priority on allotment. This is useful when the current market price is much more than the offer price. Here the offer price was Rs.201 and the market price was Rs.205. Who will buy in the issue, block the funds. If the market falls, they may get even below Rs.200! Government failed to understand this.

(2) The Government holding was offered and they could have given at a lower price to the retail investors. This also, contributed for the failure. Probably, they thought that people will be mad to get these shares.

(3) If the market price and the offer price are very close, investors will get attracted, if the stocks are not that liquid (not widely traded in volumes) in the market. Here, NTPC was traded widely.

(4) If they are not really looking at the retail sector, then they could have directly placed the shares with LIC & SBI. This would have saved the issue cost and saved the government from this embarassment.
So, what is the fun in this FPO - NOTHING. With the other FPOs - REC & NMDC in the offing in Feb 2010, they would have learnt the lesson with the NTPC issue.

I solicit your views on this.

Cheers and Happy Weekend,
Gopal

3 comments:

Anonymous said...

It came in at a wrong time and with high price.
My 2 cents.
Regards, Seshan.

Madhu on Feb 11, 2010, 11:53:00 AM said...

In addition to your reasons for the FPO failure,the Market was in a downward trend during the issue period and I think investors were jittery.

Regards,
Madhu

Gopal Ramanan on Feb 18, 2010, 11:39:00 AM said...

Yes, Madhu, that is also a reason. But the other issues were over-subscribed and even in the falling market, once of Real estate company issue was over-subscribed (that too at a very high price). Let us see how the REC - FPO goes, they are offering it at Rs.203..which is 7% lower than the CMP.

Cheers,
Gopal

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