Financial Daily from THE HINDU group of publications
Wednesday, Aug 06, 2003
Financial Daily from THE HINDU group of publications Wednesday, Aug 06, 2003 |
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Corporate
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IPOs PFC's public offer hits roadblock again Balaji C. Mouli
New Delhi , Aug. 5 POWER Finance Corporation's (PFC) renewed attempt to float an initial public offering (IPO) for 10 per cent of its equity has hit a roadblock. In a meeting held on August 4, chaired by the Power Secretary, Mr R.V. Shahi, the Power Ministry has told PFC that the associated return of capital to its owner, the Central Government, would require to be done at book value and not at par value as proposed by PFC. According to PFC officials, key to the viability of its IPO is the return of a portion of PFC's equity capital at par. This is because the Government-owned PFC has a bloated equity capital of Rs 1,030 crore, translating into current earnings per share of around Rs 8 per share, thus making it unattractive to potential investors. Therefore, only if the equity is returned at par will the IPO be financially viable for PFC. The book value of PFC's equity is over Rs 2,100 per share, way above the par value of Rs 1,000 per share. The Power Ministry had prepared a draft Cabinet note for the IPO proposal, where it had mooted return of 50 per cent of PFC's equity amounting to Rs 515 crore. During discussions held on Monday, the PFC management was told that return of capital would require to be carried out at a minimum price corresponding to the book value. This, since a few years ago, the Power Ministry had sought Cabinet approval for buyback of 20 per cent of PFC's equity at book value. The buyback, however, did not take place. According to senior PFC officials, although the Government has asked PFC to rework its financials for the IPO, given the underlying fundamentals of the issue, possibility of an IPO looks bleak. PFC's IPO proposal has been hanging fire for over a year with the Government. It suffered a set back in May this year, when the Finance Ministry objected to return of capital by public sector banks at par value. Nevertheless, the Power Ministry recently mooted a Cabinet note only to find it unviable for PFC to undertake the IPO proposal. PFC has been advised on the IPO issue by consultants, JM Morgan Stanley.
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