Rural Electrification Corporation (REC) has not received very good response from the primary market for follow on public offer (FPO). The latest FPO received only 60 per cent subscription till today. The offer will close tomorrow.

The weak response from the markets has surprised the government which tried to boost investor interest by relaxing norms after it received weak response for an earlier issue by National Thermal Power Corporation. This is despite the discount being offered of more than 5 per cent on the price.

The government offered relaxed rules like fund managers have been allowed to change either the price or quantity during the bidding period. Some experts believe that the government divestment would go better if it chooses for private placement of shares to institutional investors.

According to the data released by the National Stock Exchange (NSE) the issue was subscribed 0.59 times till 5 pm today. The issue has 171.7 million shares on offer with a floor price of Rs 203 per share however it received bids for 101.6 million shares.

About 50.5 million shares were bid at Rs 204 making it the largest number of bids. Bids for 32.5 million shares were received at Rs 205 while the highest bid was for 2.14 million shares at Rs 215.

The qualified institutional buyer's participation in the issue is interestingly similar to that of National Thermal Power Corporation's FPO. Some of the insurance companies have bid for the issue while foreign institutions are not showing interest due to only marginal discount being offered on such divestment offers.

The shares of REC dropped significantly to close at Rs 214 on NSE. Some experts expect the stock to fall further. The expectation is due to the fact that NTPC's shares too plunged after its FPO. There are also apprehensions about under subscription. Experts estimate the REC to record earnings per share of around Rs 23 for FY11.

The disinvestment department has aimed to raise about Rs 24,000 crore from sale of stake in public sector units in the financial year in order to reduce some of the fiscal deficit of the government which is near 6.8% of the GDP.