NEW DELHI: The over $2-billion follow-on public issue from the state-run NMDC, which opens tomorrow, could be a showdown of the government's stake sale programme once again, as the issue is likely to draw muted response from investors due to high issue price, according to analysts.
The government has fixed a price band of Rs 300-350 per share for the follow on public offer (FPO) of the country's largest miner, which represents a discount of 13-25 per cent over yesterday's(08.03.2010) closing price of Rs 400.
"The issue looks expensive compared to its global peers. Expect a lukewarm response from investors and state-run entities would again come to the rescue to make the issue log subscription," says SMC Capitals head of equity Jagannadham Thunuguntla.
The government would be diluting 33 crore shares or 8.38 per cent stake through the issue. If fully subscribed at the upper end of the price band, the government would mop up Rs 11,700 crore from the market.
"The NMDC issue is likely to see a muted response and can prove to be a third consecutive disaster of the selloff programme. Pricing is aggressive and retail investors may show some interest as there is an additional 5 per cent discount for them," Kejriwal Research and Investment Services head Arun Kejriwal said.
The marketmen had earlier predicted that the NMDC issue if priced at a discount of 30 per cent over the current market price could see good investor response.
State-run financial institutions--LIC MF and SBI MF brought a major chunk of the shares-- had pitched in to make the public offers of NTPC and REC successful last month. The two FPO had followed the French auction route for sale.
"This time there is no ambiguity regarding the French auction route. If the issue remains undersubscribed that will be entirely due to the aggressive pricing," Thunuguntla said.
The NTPC share sale was subscribed only 1.2 times which analysts say was mainly because of offer price of Rs 201 was barely competitive when compared to the prevailing market price of Rs 207. Also LIC MF and SBI MF brought a major chunk of shares.
Besides, the Rural Electrification Corporation (REC) issue was subscribed over three times. Although retail demand was muted, a host of foreign investors flocked the counter.