Abstract:
In this paper we will discuss about the Rural Electrification Corporation (REC) IPO. Of late REC has proposed to enter into the capital market through public issue. We will analyze the strengths of REC and also highlight the risks associated with the REC IPO.
Rural Electrification Corporation, a public organization that finances the power infrastructure in the rural parts of India, aims to enter into the capital market by issuing its initial public offering (IPO). They plan to release 156.12 million shares in the market through the book building process. The price of each share will be 10 rupees.
The public issue of the Rural Electrification Corporation (REC) will consist of almost 78 million equity shares. That figure may reach upto 152.21 million in the near future. However, almost 3.90 million shares will be reserved for the eligible employees.
The REC wants to increase its capital base by issuing the IPO, since more capital will be required to grow the asset and repay the loans.
Strengths of REC:
- The experts estimate that within 2012, REC will be able to increase its power capacity by nearly 70,000 mega watt. Therefore, individuals may go for REC's IPO without any hesitation.
- REC's amount of disbursements and loans have increased over the years.
Risks:
- REC has taken a huge amount of loan from the State Power Utilities (SPU) and State Electricity Boards (SEB) out of which, Rs 33,764 is till not been payed yet.
- REC's past record of financial growth will not encourage the public to go for IPO. Over the last 3 or 4 years it had not been able to increase its financial strength as well.
- REC's asset quality is not at all good compared to the others.