The government needs to draw the right lessons from the recently concluded public offer of the National Thermal Power Corporation, which is among the most valuable of government-owned companies. Its follow-on public offer of 412,273,220 equity shares was fully subscribed only because of the sizable support it received from the Life Insurance Corporation of India and the State Bank of India. But, the portion of the share offer reserved for retail investors was grossly undersubscribed. After the NTPC, several other top performing government-owned undertakings — for instance, the Rural Electrification Corporation and the National Mineral Development Corporation — are expected to come up with public offer of shares. By offering a small part of its huge holdings in these undertakings, the government wants to mop up funds by way of capital receipts, thanks to the urgent need for it to bridge the ballooning fiscal deficit. Public enterprises like the NTPC that are already listed have been asked to increase the size of their public float up to 10 per cent of the equity capital. Those that are profitable but have not been listed so far have been asked to do so.

In the NTPC issue, although the fiscal objective has been realised with the full subscription, the meagre retail response means that another important objective, namely wide participation, has not been achieved. Share offers by profitable public enterprises are expected to spread the equity culture, which is now at abysmal levels and skewed in favour of specific regions. Investors who are more safety conscious would provide the government company with a stable, diffused shareholding. The principal reason why a substantial section of retail investors has shunned the NTPC issue is the high floor price — of Rs.201 a share — in relation to the market price of around Rs.205. Investors have evidently preferred to wait and pick up the shares without having to go through the issue process. It is true that market conditions turned adverse on the day the issue opened but any deft management of public issue should take into account all the contingencies. A suggestion has been made that retail investors should be given incentives, preferably a relatively large discount in the floor price. A wide range of facilities to increase retail participation including wider access to bank finance and new investor friendly schemes such as Applications Supported by Blocked Amount (ASBA) should be provided. The divestment programme has yielded rich returns to the NTPC and others embarking on a follow-on issue. Their valuation has more than trebled. There is no reason to deny the small shareholder the benefits.

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