Response to NTPC FPO lukewarm due to mkt correction: Enam

The NTPC follow-on public offering (FPO) of 412,273,220 equity shares closed for subscription on February 5, 2010. The issue was subscribed 1.2 times overall.

In an interview with CNBC-TV18, Pradip Baijal, Former Secretary, Department of Divestment and Dharmesh A Mehta, MD-Institutional Equities, Enam Securities, discuss why the issue was poorly subscribed.

Here is a verbatim transcript of the exclusive interview with Pradip Baijal and Dharmesh A Mehta on CNBC-TV18. Also watch the accompanying video.

Q: NTPC despite poor market conditions has soured the mood a bit, the way government institutions SBI and LIC had to bail it out otherwise it was terribly undersubscribed, what are you thoughts on how this whole follow-on public offer (FPO) process is been taken forward by the government?

Baijal: Once you are in the market, going up and down in the market is a natural phenomenon. There are so many private sector projects which entered the market and the issue behaved very badly. This is one of those hazards of entering the market.

Q: So you are happy with the way the government is proceeding with this FPO business and why an FPO in the first place? If you had to place a chunk of NTPC to institutional investors, why could it not been a QIP or a placement because retail was never going to be excited with this kind of pricing in any case?

Baijal: The best way of disinvestment always is privatization, which is either to sell to a strategic partner or you sell the majority shares. But then privatizing or selling majority shares is a political decision. The political government did not take that decision and it went to the second best decision which is that you sell the shares in the market and you sell minority shares. With this kind of sale the market is never happy because the management does not change, the company does not change, the practices do not change and what you do is that you sell minority shares which have very little influence on the working of the company. It has a little influence only because in place of some beaurocrats, politician and technocrats judging the performance of the company, more and more people in the market start judging that company and that gives very positive signals to the management of the company that was done.

When you do this it is very important that you involve the retail investors, this time not many retail investors have come. Maybe in the next issue if pricing is right, timing is right, which cannot be predicted before hand, then there will be more retail and more institutional investors.