Centre approves Rs. 5800 crores FPO of PFC

The UPA government  approved follow-on public offer (FPO) of Power Finance Corporation (PFC) that is expected to raise Rs 5,800 crore in the first quarter of next fiscal.The Cabinet Committee on Economic Affairs has approved the public offer that includes 15% fresh issue of shares by the company and 5% divestment by the government, an official statement said. Retail investors and PFC employees will be eligible for a discount of 5% on issue price, the statement said. Currently, the government holds a 89.78% stake in PFC. The Centre divested a 10% stake in the company through an initial public offer in 2007.

A PFC official said the public issue was likely to hit the capital market in the first quarter of 2011-12. The company's shares closed at Rs 251.95, down 1.56%, on the BSE on Thursday. Fresh issue of equity shares would enable PFC to maintain a comfortable gap between the present and required capital adequacy ratio and enhance equity base for meeting growing future investment needs, the statement said.

PFC in July last year was categorised as NBFC infrastructure finance company. The status requires PFC to maintain capital adequacy ratio of 15%. At present, PFC's capital adequacy ratio stands at 18%. Up to 0.12% of the issue, would be reserved for PFC employees. After the proposed FPO, government's stake may go down to about 85%. The reservation of equity shares for PFC employees are subject to the limit prescribed for retail investors by Sebi, which will not exceed 0.12% of the issue size.

A discount of 5% of offer price will be given to retail individual investors and eligible employees. The public offer would help PFC to meet the eligibility requirement of maintaining a capital to risk assets ratio of 15% for industrial finance company status.The FPO will also enhance equity base of the company to enable it to meet the growing future investment needs of the power sector.

PFC is a non-banking financial institution that provides loans for various power projects in generation, transmission and distribution sector as well as for renovation & modernisation (R&M) of existing power projects. The government has set a target of raising Rs 40,000 crore from disinvestment this fiscal, against Rs 25,000 crore last fiscal.