REC Share Sale Subscribed More Than Twice

Mumbai: A sale of shares in state-run Rural Electrification Corp worth up to $250 million has been subscribed nearly two-and-a-half times, at an indicative price of over Rs 316 each, exchange data showed.

The share sale is part of the government's plan to raise about $11.1 billion through asset sales during the current financial year ending March 2016. The asset sales are crucial to meet a fiscal deficit target of 3.9 per cent of GDP for 2015/16 financial year.

The government has missed its divestment target for the past five years. A shortfall in receipts from stake sales and taxes has led to cuts in public spending of about $48 billion in the past three years, slowing economic recovery.

"Given the positive response and sentiment from both global and domestic investors there should be good appetite for quality issues if valuations are attractive," said Navneet Munot, chief investment officer of SBI Funds Management.

Greater faith in the India's political leadership and reform process should help government's divestment drive, he added.

Overseas and domestic portfolio investor demand for REC's shares exceeded supply, in a vote of confidence of recovery in power starved Asia's third-largest economy.

The floor price of Rs 315 a share implies an inexpensive valuation of less than 1 time of FY17 book value, which is an attractive entry point for long-term investors, broker Indiainfoline wrote in a note to clients on Wednesday.

The government, which earlier owned a 65.6 per cent stake in the company, primarily engaged in the financing of power projects, had said it would sell a 5 per cent stake through an auction.