Of the total proceeds, the company is expected to get about Rs 5,600 crore to meet its investment plans in the next two financial years, according to an official statement.
"The 17 percent follow-on public offer of Power Grid has been cleared. This includes 13 percent fresh equity and 4 percent stake sale by the government," Power Minister Jyotiraditya Scindia said after the Cabinet Committee on Economic Affairs (CCEA) meeting.
"CCEA has approved the proposal of follow-on public offer of Power Grid Corp of 78.70 crore equity shares of Rs 10 each constituting 17 percent of existing paid-up capital," an official statement said.
Power Grid offer will comprise fresh issue of 60.18 crore equity shares (13 percent of existing paid-up capital) and offer for sale (disinvestment) of 18.51 crore equity shares (4 percent of existing paid-up capital) held by the central government.
Shares of the company closed at Rs 95.10 apiece, down 1.19 percent on the BSE today. At current market valuations, government stake sale will fetch nearly Rs 1,700 crore.
"Additional resources generated through the issue of the FPO will be utilised by the company in its investment programmes," the statement said.
Post-FPO, the government stake in the company will come down to 57.89 percent from current shareholding of 69.42 percent.
According to sources, Citigroup, ICICI Securities, UBS, SBI Caps and Kotak Mahindra have been appointed as merchant bankers for the FPO.
This would be the second follow-on offering from Power Grid, which sold a 10 percent stake along with a similar stake divested by the government in November 2010 at an issue price of Rs 90 a share.


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