REC issue sails through,but high price keeps retail investors away

The follow-on share sale of Rural Electrification Corporation was subscribed 3.14 times on the final day of the issue on Tuesday...

The follow-on share sale of Rural Electrification Corporation (REC) was subscribed 3.14 times on the final day of the issue on Tuesday,thanks to heavy demand from institutional investors like banks,state-owned institutions and foreign institutions. However,citing high pricing,retail investors ignored the issue and the retail quota was subscribed only 22.97 per cent.

With FIIs and government-owned banks and FIs coming to the rescue of the REC issue,the company received bids for 53.96 crore shares,against 17.17 crore shares on offer,resulting in a demand of 3.14 times,data available from the National Stock Exchange said. LIC,UTI and SBI submitted bids for the FPO on the final day with LIC alone estimated to have placed a demand for shares worth Rs 800-1,000 crore. As a result,the quota reserved for qualified institutional buyers (QIB) was subscribed 5.51 times,while the HNI quota was subscribed two times.

Indicating the complete disillusionment of retail investors,the retail portion got only bids worth 1.37 crore shares as against 5.99 crore shares on offer. High pricing is the main reason for retail investors keeping away from the issue. Theres no apparent gain for retail investors as the market price is already hovering around Rs 212.65. The governmentt should have offered a substantial discount of 15-20 per cent to retail investors. Retail investors will come in large numbers if a discount is given, said a BSE dealer.

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Banks and domestic institutions have put in Rs 4750 crore in the REC issue while FIIs have applied for shares worth Rs 3,630 crore. While majority (over 23 crore) of the bid came in at Rs 205 a share,over 16 crore bids came in at Rs 206 a share and 6.68 crore at the floor price of Rs 203 per share.

Meanwhile,the initial public offer (IPO) of public sector lender United Bank of India was fully subscribed on the first day of issue on Tuesday,but the retail investor quota has remained undersubscribed. The issue received bids for 9.41 crore shares,against five crore shares on offer,thereby generating a demand of 1.88 times,according to the data available with the National Stock Exchange. Domestic banks and institutions put bids for 9.23 crore shares,thus helping the full subscription on the first day itself.

In the case of United Bank,retail investors put bids for only 17.36 lakh shares as against 1.42 crore shares on offer on the first day. The PSU lender plans to raise up to Rs 330 crore from the capital market and has fixed the price band for the issue at Rs 60-66 a share.

The NTPC issue earlier this month was subscribed largely due to heavy investment made by Indian institutions like SBI and LIC. Indian banks and FIs picked up 39.75 crore shares worth around Rs 8,000 crore. It witnessed a poor response from the non-institutional and retail investors. Out of 14.28 crore shares reserved for retail investors,there were bids only for 2.35 crore shares,indicating a response of 16.4 per cent.