Merchant bankers fret over REC FPO fate

A Sharp decline in the share price of Rural Electrification Corporation (REC) has led to concerns among merchant bankers over the fate of the company’s upcoming FPO. The pre-issue movement in REC shares is similar to that witnessed in NTPC, whose offering received a lukewarm response from both institutional and retail investors.

From its 52-week high of Rs 274.5 on January 19, REC shares have fallen to Rs 229 at close on Tuesday, a loss of 16% in two weeks. Lack of good listing gains, which merchant bankers mainly attribute to unrealistic pricing mechanism, has been keeping prospective investors away from new issues. This could have prompted even existing shareholders to take a cautious view about their investments in companies like NTPC and REC, feel bankers.

The REC board is meeting next Tuesday to finalise the FPO floor price for the government’s approval. The offer, which aims to raise Rs 3900 crore, is expected to open on February 19, 2010.

Contributed by Vijay Gurav & Santosh Nair