NTPC auction sees 55-60% FII participation: Deutsche Bank

State-owned National Thermal Power Corporation (NTPC) saw a good response to its offer for sale (OFS) and the stock moved to about Rs 149 today. Sanjay Sharma, MD & Head of Equity Capital Markets, Deutsche Bank said 55 to 60 percent of the takers were foreign institutional investors (FIIs) and the remaining interest came in from domestic retail as well as non-institutional players.

Sharma further added that there was a good mix of participants and the NTPC offer for sale saw long-only investors, hedge funds and also sovereign funds taking interest in it. Here is the edited transcript of the interview on CNBC-TV18. Q: Can you give us a little bit more colour? We just know the overall number, but can you just give us a little bit more detail by way of – or granular detail on how much Foreign Institutional Investors (FIIs) bought, how much domestic mutual funds bought etc?
A: I think this is very good outcome for an OFS to be subscribed, such a large offering by around 1.7 times. As you know, OFS is more like a secondary market transaction. So you would not get granular details as you would expect. But based on our discussions with other banks, I think there were a couple of things. One is we had pretty strong FII demand. I would put that number to about 55 to 60 percent from FIIs.
The other thing was that the demand was pretty widespread and not that one or two people were large enough to take allocations. I would say there would be more than 10 people who will put in orders of USD 100 billion plus. So very widely distributed, almost 55 to 60 percent was from FIIs and also note that the balance domestic interest came through non-institutional or retail investors as well. Q: Would you have seen most of the FII appetite coming from long-only products or even pension fund or sovereign fund kind of players or did you see even hedge funds participating?
A: It has always got to be a mix. I would say, out of the FIIs, most of them were long-only. A couple of sovereign wealth funds also participated. But, it was a pretty good mix and you need some of the hedge funds as well in the deal and they were also participating. Q: From the domestic institutions, was it largely insurance companies or did you see appetite from any of the larger domestic mutual funds?
A: Yes, there was demand for mutual fund as well. As I said, it was pretty widespread and one of the things which also helped was the fact that Securities and Exchange Board of India (SEBI) had given an option of zero percent margin for some of the investors. So you also saw a pretty good mix of people coming in with 100 percent margin, who wanted a T+1 delivery or more importantly have the option to revise the price, while people who wanted to put in zero percent margin did not have the option to revise it downwards.
They could of course revise it upwards and as the deal progressed, there were revisions as well from people who revised their prices and eventually got the price. But, the stock price took a beating on that day. The realised price for the government was just about 1.5 percent discount to yesterday’s price, which was pretty good given that the floor was about 2.5 percent discount to last close.
_PAGEBREAK_ Q: Now that NTPC is done, which deal from the government pipeline are you working on next?
A: With this deal, I would say about Rs 21,000-22,000 crore of the Rs 30,000 crore budget would have been done. I think for this financial year, we just have about a month left after the budget. I would say based on whatever discussions we have, Steel Authority of India (SAIL) and National Aluminium Company (NALCO) should be on the radar, but nothing has been finalised yet. Q: Would SAIL be a hard sell to global investors, given its poor price performance of late and the fact that metal stocks are not exactly the most fancied in the market, would it be difficult for you to push through?
A: Not really. I think that was a question even from a NTPC perspective, just given the size of the transaction. But, I think there is demand. It all boils down to one thing and that is the ease of the process in the mechanism, which has happened because of the zero percent margin option. Ultimately, it is a question of price. You know whatever be the positives and negatives of a stock, the stock trades on a daily basis at a particular price. So if there is a reasonable discount to that price, deals will be done. I don’t think that’s an issue. Q: You would say the same for NALCO or do you think the discount will have to be more substantial than was offered in NTPC's case for both these metal companies?
A: As I said, all the public sector undertaking (PSU) companies from the perspective of management and the sector they belong to would be in demand. It is as much a question of discount, less for some. It depends on how the business is? How the trading is?
As you saw in a couple of transactions where the trading was very low, the discount has to be higher. So, it would be a combination of all these factors. But, I don't think you will need too big a discount for both these deals to get done. Q: What is the pipeline looking like from the multinational corporation (MNC) front because some of these companies like Blue Dart etc. have chosen to go down the offer for sale road rather than go the delisting route. Do you expect more transactions to happen from that space over the next 2 to 3 months?
A: Yes, there has to be. SEBI has been making it very clear that the June deadline is for real and based on our discussions, a lot of companies, MNCs and otherwise are seeing how they can comply with the guidelines. The good point is that if they want to do an OFS, it is a pretty quick transaction. They don't need to take too long for deciding. Once they decide, it could get done in a week's time.
There would be a few of them who could possibly look at delisting also, particularly on the MNC space and there are hardly 10 to 15 companies which are not compliant in the MNC space. But, given the fact that we have only limited time, my expectation is most of them would like to go down to 75 through the OFS route. Q: Are there any big transactions or small transactions over the next couple of months that you are working on?
A: Forget what I am working on, but if you just look at the landscape, I would say there are hardly 10 or 15 companies which would be above USD 500 million, who are non-compliant and the rest of them are pretty small. So from that perspective, if you are looking at it from a perspective of how much of supply is going to come into the market because of this, I don’t think that’s any worry from a market perspective. Q: This morning we got a deal from a private player Indiabulls Finance, which also got concluded. But some of the companies which were trying to raise capital over the last one month pulled out at the last minute. Is the market very discerning about what it wants to buy into this time around? What feedback do you get from your clients?
A: Very clearly, I think investors are putting money into the markets. You have seen almost USD 4.50 billion of FII flow coming in this year so far. But very clearly, it is primarily on large-cap and some of the mid-caps and it is more specific to the companies. People are getting very selective nowadays.