India's Power Finance Corporation's share sale to raise upto $1 billion was subscribed 3.6

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times on Thursday, indicating appetite remains strong for the government's divestment pipeline even amid volatile equity markets.

The offer saw demand of about $3.7 billion by close on Thursday, the last day for bids from institutional investors. The offer closes on Friday for other investors.

"The discount to the market price is quite attractive and the government needs to continue offering a substantial discount to attract investors for other offers," said Mohit Mirchandani, head-equities at Religare Portfolio Management Services.

"But institutional investors typically look for future prospects. It is a call on the long-term fundamentals of the company," he added.

Investors have been seeking broader exposure to India's power sector, driven by growth prospects in a country that aims to halve its peak-hour power deficit within two years and triple generation capacity by 100,000 megawatts during 2012-17.

India faces a peak-hour power shortage of nearly 14 percent and utility companies are expanding capacity to satisfy a rapidly urbanising population and rising industrialisation.

The institutional portion for the Power Finance offer, which accounts for half the offer size was subscribed nearly 7 times the shares available.

Most of the bids were at the top of the 193 to 203 rupee price range, which is likely to give the government leverage to price the offering at the top end. Retail bidders will get a 5 percent discount to the final price.

On Thursday, shares in Power Finance, a state-run lender to power projects, closed 1 percent lower at 215.85 rupees in a weak Mumbai market.

The stock, valued by the market at $5.6 billion, has fallen 30.4 percent so far in 2011, compared with a 10.6 percent fall in the benchmark index.

TEST FOR DIVESTMENT PLANS

The Power Finance offer, the first divestment in a state firm this year, was billed as a key test for investor appetite amid slowing foreign fund flows and rising interest rates in India.

It follows the success of Coal India's record $3.4 billion IPO and Power Grid's $1.7 billion follow-on offering late last year.

The offer is part of the Indian government's plan to raise $8.9 billion through share sales in public sector firms this fiscal year (April-March) to cut high fiscal deficit and garner funds for schemes for the poor.

It will be followed by an up to $1.8 billion share sale in Steel Authority of India, and a follow-on offer in state run explorer Oil and Natural Gas Corp that could raise as much as $2.5 billion.

Indian companies raised $24.9 billion from equity issues in 2010, posting a growth of 22 percent from the previous year and marking the market's best annual performance since 2007, according to Thomson Reuters data.

In the first quarter this year, 22 firms have raised $2.3 billion in the Indian market, the data showed.

Goldman Sachs, Bank of America Merrill Lynch, JM Financial Services and ICICI Securities, a unit of India's second-largest lender ICICI Bank, are the bookrunners for the Power Finance offering.