REC FPO gets poor response on Day 1

First-day subscriptions to the public issue by state-owned Rural Electrification Corporation surpassed National Thermal Power Corporation in terms of poor investor response, being subscribed just 0.29 times, raising fresh doubts about the success of the government's disinvestment programme.

The issue received bids for 34.90 million shares out of the total issue size of 171.73 million shares. The issue closes on Tuesday.

NTPC's FPO of over Rs 8,000 crore was subscribed 0.7 times and was finally subscribed just 1.2 times, with most bids coming from state-owned banks and insurance companies.

The REC issue is a combination of a fresh issue of 128.8 million shares and an offer-for-sale or follow-on public offer of 42.93 million shares by the government.

The amount to be raised at the floor price would be Rs 3,487 crore, of which the government would be getting around Rs 870 crore.

The most bids today came at Rs 204 for 33.5 million shares, followed by at Rs 205 for 10 million shares. Other bids came in at Rs 203 for 5.27 million shares and at Rs 210 for 0.92 million shares.

Investment bankers associated with the REC issue said they expect institutional investors to bid next week. They said the response on the first day was also low because of the weekend, when investors were reluctant to take a risk on the price.

They also said most of the bids today came from high net worth individuals and some institutional investors who are looking at the arbitrage opportunity between the floor price of Rs 203 and the futures price.

Sailav Kaji, Director (institutional equities) at Fiduciary Euromax, said: "There have been short positions being built by HNIs in the last two or three days."

A huge build-up of short positions was also seen from the derivatives market, where the open interest in the REC stock futures for the March series increased almost 37 percent in Friday's trading to 6.3 million shares.

The March series stock futures of REC closed at Rs 207.75, a discount of 2.9 percent to the spot price of Rs 214 on NSE.

But, Kaji said these investors knew even a Rs 3 per share arbitrage would give them an annualised return of 15 to 18 percent.