NEW DELHI: The government plans to give small investors a 5% discount when it sells shares in three state-owned companies, hoping to lure Retail No-show individual investors who have shown lukewarm interest in two previous public issues by government firms.

Retail investors in the follow-on public offers of Rural Electrification Corporation (REC) and NTPC and the initial public offer of Satluj Jal Vidut Nigam (SJVNL) due in the coming weeks will likely be allotted shares at a discount, two officials in the finance ministry said.

“The ordinary public should be encouraged to participate in India’s growth story and not just the overseas investors. Therefore, the issue should be priced in such a manner that retail investors don’t end up losing money in the capital market,” one of the officials said.

Share sales by the government to raise Rs 8,800 crore in the past two months in hydel power producer NHPC and Oil India saw excited interest from wealthy individuals and institutional investors, but retail participation was tepid.

The NHPC issue was subscribed 29 times, but the retail portion was subscribed only 3.8 times. In the case of Oil India, the retail portion was subscribed less than 2 times while the entire issue was subscribed 30 times. Similar lack of retail interest was in evidence during the share issue by private power producer Adani Power.

The government plans to raise around Rs 25,000 crore in the current financial year by selling stakes in public sector companies. At current market price, the 5% divestment in NTPC could fetch the government around Rs 9,000 crore. The REC issue size is expected to be around Rs 3,600 crore, including the government portion of around Rs 900 crore.

State-owned companies have inherent inflexibility in fixing the allotment price, said an official. “Due to overwhelming response from institutional investors and wealthy individuals, the company or the bankers fixes the issue price at the upper end of the price band. If the issue is oversubscribed multiple times, fixing the price toward the lower end of the price band may invite investigation,” he said, adding that “the government is left with no option but to offer a discounted price for retail investors.”

Under Sebi rules, companies are allowed to give a discount of 5-10% to retail investors compared to the price offered to wealthy individuals and institutional investors. All companies must reserve 35% of the share issue for retail investors, 15% for high net worth individuals and the rest for institutional investors.

An official said REC, which is in the midst of appointing investment bankers, has informally suggested to the government to offer a discount to retail investors.

In 2004, the government had given a 5% discount to retail investors when it sold shares in ONGC, Gas Authority of India, IPCL, Dredging Corporation and IBP.

In 2007, ICICI Bank sold shares to small investors at a 5% discount, becoming the first private company to do so. Retail investors were given a similar discount by Reliance Power during its initial share offering last year.