The Telegraph
Since 1st March, 1999
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PFC told to cut equity base before floatation

Calcutta, March 2: Morgan Stanley has advised Power Finance Corporation (PFC) to reduce equity by 60 per cent and come out with a public floatation of Rs 46 crore.

The global consultant, enlisted by the power ministry to chart the course for the mini ratna’s initial public offer, wants the shares to be priced at a premium of Rs 25.

The corporation decided in September last year to launch its initial public offering (IPO), followed by a jaunt to the international market with American Depository Receipts (ADR) or Global Depository Receipts (GDR).

Paying back the government some of its equity will improve valuation and help PFC shares command a high premium.

A reduction of 60 per cent will oblige the state-owned firm to return Rs 618 crore to the government. An initial public offer equivalent to 10 per cent of the scaled-down capital base comes to around Rs 46 crore, officials said.

PFC, along with other public sector power firms like including National Thermal Power Corporation and Rural Electrification Corporation, want government nod to raise funds from the market over the next few months.

PFC has a paid up capital of Rs 1,030.45 crore, entirely subscribed to by the government; free reserves and surplus stand at Rs 3,368 crore. This can be used to reduce the government’s equity.

The decline in equity to Rs 412 crore from Rs 1,030 crore is expected to boost valuation ahead of the IPO, officials said.

In its presentation made to the power ministry recently, Morgan Stanley sought government approval to lower the face value of each Power Finance Corp share from Rs 1,000 to Rs 10.

The global consultant feels Power Finance Corporation should consider a minimum public offer of 10 per cent of its equity capital because the stock slump does not justify a big floatation.

The company has set sights on overseas bourses, by lining up GDRs and ADRs, but says that will come after the IPO and the listing of its shares at home, officials said.

Power Finance Corporation lends in a variety of ways. It offers rupee term loan, foreign currency term loan, buyer’s line of credit, working capital loan and loan to equipment manufacturers.

Its non-fund based activities include providing guarantees, exchange risk management and consultancy.

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