NTPC OFS: Insurance cos could lend support says Tulsian

The NTPC offer for sale (OFS) floor price has been set at Rs 145 per share. The floor price is set at discount to current market price (CMP). The government will be divesting 9.5% stake in NTPC.

SP Tulsian, sptulsian.com says that although the OFS floor price seems to be set at a discount to the CMP, the price seems to be a bit aggressive. He does not think there will be good response from the Foreign Institutional Investors (FIIs). NTPC signs loan pact worth $250m with SBI, Mizuho Corp Bank
This is a very prestigious issue for the government and they will see that the issue goes through. In the last month or so, LIC and other insurance companies have been mobilizing money, so maybe they will lend support to the issue. Below is the edited transcript of his interview on CNBC-TV18 Q: Rs 145 is the floor price set for National Thermal Power Corporation (NTPC) Offer for Sale (OFS). What do you think?
A: I think this price is too aggressive because if you go by the present closing of Rs 151.80 this has been set at a discount of 4.5 percent. If you really go by the track record of the older issues generally the ballpark discount has been set at 5 percent. This means either government is too confident that there is going to be a strong appetite or they may have made some back calculation or the back arrangement where Life Insurance Corporation (LIC) and all will come to the rescue for subscribing this issue.
Rs 145 floor price seems to be quite aggressive and I do not think that the Foreign Institutional Investors (FIIs) response will really be that good. Q: Are you predicting a situation where again we are going to see the likes of LIC and other domestic institutional investors having to bailout a disinvestment?
A: That is right. FIIs are presently holding about 4.5 percent stake in the company and I do not think that they will be really having much appetite now at the current rate. Because the utility company ruling at a PE multiple of double digit or maybe 11 or so will not really attract the investors, in the issue, at the current price.
The kind of preparations which we have been seeing; LIC and the other insurance companies had been mobilizing money in this last one month or so. Left, right and center, they have been selling the stakes in the companies like Tata Global Beverages, Bata. There are at least 8-10 companies in which they have all sold their stakes, which indicates that lot of money is being mobilized by them to lend support to this issue.
This is a very prestigious issue for the government. This is at the fag end of the financial year. It is of a very large size of Rs 11,000-12,000 crore, so obviously the government will be seeing that issue go through. I think insurance companies and LIC will come to the rescue.