IPO/FPO Watch: Look out for the NTPC Follow-on Public Offer

The Government is trying to reduce the current fiscal deficit through various ways including disinvestment. Accordingly it has chalked out plans to offload its stake in more than 15 companies to achieve a disinvestment target of Rs 30000 crore in the current fiscal. Last month, it began the disinvestment process by selling a 5.58 per cent stake in Hindustan Copper. NMDC’s 10 per cent stake sale is scheduled to take place today. It still needs to raise more than Rs 23000 crore till March'2012.

As a part of this exercise, the government has approved the sale of its 9.5% stake in the country's largest power producer NTPC which will happen after the 15^th of January next year. It is planning to sell almost 78.33 crore shares and expects to generate around Rs 13000 crore at the current market price. Currently, the government holds 84.5% of NTPC and plans to reduce its holding to 75% helping the company to comply with the minimum public shareholding norms.

NTPC is a state-owned company engaged in the generation and sale of bulk power to state power boards. The company has 16 coal fired projects and seven gas fueled plants, along with seven power plants which it operates as joint ventures. Currently, the power company has an installed capacity of 39674 MW and plans to add over 16000 MW capacity in the near future. It aims to increase its installed capacity by up to 128,000 MW by 2032. NTPC went public in 2004. Thereafter in 2009, the government came up with a follow-on public offer to further dilute its stake. The market capitalisation of NTPC currently stands at a little above Rs. 126,000 crore.

The government recently decided to reallocate to the company, three coal blocks that were earlier de-allocated from NTPC for a delay in the development of the mines. This reallocation is expected to fire 8500 MW of electricity generation capacity for it. The development, which is very good for the company has come at a time when it was grappling with fuel shortages and suffering under-utilisation of its electricity generation capacity. Further, the re-allocation of coal blocks is expected to boost NTPC's overall valuation which in turn would help the government get maximum funds from the proposed stake sale.