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Balaji C. Mouli

NEW DELHI, Sept. 2

J M Morgan Stanley, Power Finance Corporation's consultants, has advised the corporation to return around Rs 600 crore of equity to its owner, the Government, in order to make its initial public offering (IPO) plan of 10 per cent of the reduced equity base amounting to Rs 46 crore attractive to the investor.

The consultant's draft report, once finalised, will be forwarded to the Ministry of Power for its consent, company officials said. The IPO size is estimated to be Rs 160-200 crore, after factoring in the premium, which will be finally determined by a book-building process.

In a presentation made to the PFC board a few days ago, the consultants said, "Reduction in the equity capital improves the profitability ratios and would therefore enhance IPO valuations." PFC has an equity base of Rs 1,030 crore and the consultants have advised PFC to return 60 per cent of the capital amounting to Rs 618 crore.

According to the consultants, the objective of the IPO would be to "ensure visibility and create a benchmark for future capital market exercise when the markets are more conducive to fund raising."

As of now, the consultants have recommended a "minimum 10 per cent float in the domestic market for the IPO." Also, "listing at attractive volumes would ensure scope for capital appreciation to the public shareholders creating market goodwill."

"Such reduction (in capital) would not adversely impact the credit rating of PFC while enhancing its valuation and its ability to raise funds from the capital market," the consultants have argued.

The analysis has been arrived at after a comprehensive comparison was conducted with the financials of the Bank of Baroda, Bank of India, Punjab National Bank, Canara Bank and Corporation Bank.

In all these cases, while the equity capital ranges between Rs 294 crore and Rs 578 crore, PFC's equity capital is currently Rs 1,030 crore.

Consequently, while the earnings per share of the banks range from 10.35 to 21.54, the EPS of PFC is around 7.5.

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