Financial Daily from THE HINDU group of publications
Friday, Jul 18, 2003
Financial Daily from THE HINDU group of publications Friday, Jul 18, 2003 |
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Money & Banking
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Financial Institutions Markets - IPOs Ministry keen on pursuing IPO of Power Fin Corpn Balaji C. Mouli
New Delhi , July 16 BUOYED by the success of the initial public offer (IPO) of Maruti Udyog Ltd (MUL), Power Ministry is now pursuing Power Finance Corporation's IPO with renewed vigour. The Ministry has recently finalised a Cabinet note for a 10 per cent equity offering which will be circulated to the other Government departments. Key to the viability of the IPO is the return of a portion of PFC's equity capital at par value to the owner, the Government, company officials said. This is because the Government-owned PFC has a bloated equity capital of Rs 1,030 crore, translating into current earnings per share (EPS) of around Rs 8, which makes it unattractive to the investor. A decision on equity reduction on a par rests with the Finance Ministry, which in May this year had objected to return of capital by public sector banks at par value. The Power Ministry had mooted a return of capital of around Rs 618 crore or 60 per cent of PFC's current equity. This would improve the company's EPS to around Rs 18 per share, enough to arouse the interest of the investor. Further, if the reduction in capital of this size is not transacted at par value, the higher outflow will affect the financial strength, company officials said. Assuming return of capital at par, "at 60 per cent reduction in capital, the key ratios over the next five years would be well within the internal norms of PFC as also those specified by its lenders. 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," according to JM Morgan Stanley, consultants to PFC on the proposed IPO.
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