National Thermal Power Corporation's plans to raise Rs 1,500 crore (Rs 15 billion) through an initial public offer has hit a roadblock with the finance and divestment ministries opposing it.

In response to a draft Cabinet note circulated by the power ministry on NTPC's public float, the finance ministry has said the utility should leverage its "low" debt-equity ratio to borrow more from the market. The divestment ministry, on the other hand, is in favour of a strategic sale.

The Divestment Development: Complete Coverage

According to officials, the finance ministry has opined that NTPC's debt-equity ratio of 0.38, on an equity base of Rs 8,000 crore (Rs 80 billion), leaves scope for leveraging sufficient debt to sustain its capacity addition programme.

The divestment ministry wants a strategic sale to realise better value for the government's equity in the company. The government, which holds 100 per cent in NTPC, will be the ultimate beneficiary in a strategic sale.

The power ministry had prepared the draft Cabinet note for the proposed Rs 400 crore (Rs 4 billion) public issue in October this year, which was circulated to various ministries for comments. Subsequently, it planned to put up a note to the Cabinet along with the comments received from the other ministries.

As per NTPC's plans, the public offer would hit the market in February 2004. The company has sought the government's approval for increasing its paid-up capital to Rs 10,000 crore (Rs 100 billion) from Rs 8,000 crore.

NTPC had proposed to offload up to 5 per cent of its equity and raise about Rs 1,500 crore (Rs 15 billion). The public offer would not only have lent greater visibility to the Rs 20,000 crore (Rs 200 billion) power major, but also ensured a smooth fund flow for its expansion.

The company, which currently has a generation capacity of around 20,000 MW, is planning to double its installed capacity by 2012.

NTPC had proposed a unique differential dividend scheme, under which retail investors were to receive higher dividend than the government, in lieu of lower voting rights.

According to NTPC's estimates, it needs about Rs 80,000 crore (Rs 800 billion) investment over the next 10 years to add the proposed 20,000 Mw generation capacity. The company has made out a case for release of about Rs 13,000 crore (Rs 130 billion) in the Tenth Plan for implementing its capacity expansion plans.

NTPC has sought a token budgetary support from the government for the next financial year.