A DAY before the opening of NMDC’s follow-on public offer (FPO), the public sector

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mining company’s stock fell by over 6 per cent on the Bombay Stock Exchange on Tuesday.

The intra-day drop was still sharper at 9 per cent, but the stock recovered some ground by the end of the day. The drop was a result of the news that the FPO would be priced a quarter below the market quote.

Investors rushed in to sell NMDC shares so as to re-buy them at a lower price in the FPO price, when it opens on Wednesday. NMDC closed Tuesday’s trading at Rs 375.65, down 6 per cent from the previous day’s close of Rs 400.60.

During the day, the government announced a price band of Rs 300-350 a share in the FPO. At the lower end of the band, the price marks a hefty discount of 25 per cent on Monday’s closing price. At the higher end, the discount is about 12.5 per cent.

“Investors are booking profits so that they can enter at a lower level later,” Alex Matthew, research head of

Geojit BNP Paribas Financial Services, said. He described the FPO pricing as attractive. Anitha Gandhi, head of institutional sales at Arihant Capital, was in agreement with Matthew.

The fall in NMDC’s stock price followed a familiar pattern: stocks of other public sector firms like NTPC and REC had fallen ahead of their share issues. However, it was believed that NMDC would be an exception as its floating stock is low and the company is not on the equity futures and options list.

NMDC chairman & managing director Rana Som sounded confident of an overwhelming response from investors. The government is selling 8.38 per cent of its equity in the company (332.2 million shares) through the FPO, which will close on March 12.

At the higher end of the price band, the company will raise Rs 11,627 crore – the biggest PSU share sale ever in India. This will be marginally lower than the Rs 11,700 crore raised by Reliance Power, which holds the record for the largest amount mopped up in a public issue.

The NTPC and REC issues had just managed to scrape through, as their pricing was regarded as high and investors, particularly retail investors, were lukewarm in their response.

Disinvestment secretary Sumit Bose said the NMDC issue was different from those of the two power companies due to the intrinsic value of the mining company and the mode of share sale. “We are offering a price band in the NMDC issue, as against the French auction system in the NTPC and REC offers,” he said.

Analysts said the government was offering attractive discounts to ensure that the issue, the last this financial year, was a success. One of them, Jatin Damania, of Centrum Broking, said the market was factoring in the lower price band in the FPO and anything above Rs 350 would not be attractive.