NEW DELHI: Government-owned power sector financing company Rural Electrification Corporation (REC) on Thursday exuded confidence about good response to its proposed follow-on public offer (FPO) that opens on Friday

It said that the French auction route would give the company an opportunity to get better pricing for its shares.

“Being in the intersection of power and financing makes the company very attractive for investors. Besides, REC has consistently given good numbers and has strong fundamentals. Further, the pricing of the issue is very attractive that should surely ensure its success,” REC chairman and managing director P Uma Shankar told a press conference here.

“We also want retail investors to come back to the capital market with our issue, as 75% of the money raised from the offer will come back to the company, enhancing its capital base and providing it an opportunity to further expand the lending activity,” Mr Shankar said.

The floor price of the REC issue has been fixed at Rs 203, a discount of more than 7% over the prevailing share price. “The level of discount is the highest, as public offers in the past few years have given an average discount of just 4.4%,” said the REC chairman.

Shares of REC dropped 2.68% to close at Rs 214.25 on the Bombay Stock Exchange (BSE) on Thursday. Under the public offer, the government will divest a 5% stake in the company, while a 15% fresh equity will be raised by REC. The issue, which will be open for subscription between February 19 and 23, will consist of a fresh issue of 12.87-crore equity shares and an offer for sale of 4.29-crore government shares in the company. Like in the case of NTPC, the issue will be through a French auction, but will give flexibility to bidders to even scale down their bids.

“The company has strong corporate credentials and at Rs 203 per share, it is fairly valued. However, the problem is that the mood in the market is not very high and the FPO also doesn’t have a discount for retail investors. I expect the issue to find a decent subscription, but it may not see a spectacular response,” said Jagannadham Thunuguntla, equity head at SMC Capitals.

However, the head of another brokerage firm said, “It’s a very good price. REC is a much better company than NTPC and I don’t see any problems in terms of subscription. I expect it to do well with strong participation from all categories of investors.”

In REC’s offer, 50% shares will be reserved for institutional bidders, while retail investors will be allowed to bid for 35% of the shares, while another 15% has been reserved for high net worth individuals. Retail investors and HNI will be allowed to buy REC shares at the floor price.