Power Grid Corp of India, which launches a share sale to raise up to $1.7 billion, aims to double capital spending to about $27 billion in the five years starting in April 2012 to meet booming demand for electricity.
Power Grid's shares declined 3.6 percent on Monday to 98.35 rupees after the government set a price range for the share sale at 85-90 rupees each, a discount to 12-17 percent to Friday's closing price.
The world's third-largest power transmission company operates 95 percent of India's interstate network, carrying half of all power generated in the country.
The share sale comes after a highly successful $3.4 billion IPO of state-run Coal India but is not expected to generate the same level of interest as the stock is already listed.
"The pricing is pretty attractive, and this could result in a fair amount of interest from institutional investors. There is a lot of liquidity floating from the Coal India refunds, and that should be an added advantage," K.K. Mital, head of portfolio management services at Globe Capital in New Delhi.
After Power Grid's offer, three other share sales in government firms by the end of December are expected to generate about $2.2 billion.
The Power Grid price range values the company at 14.9 to 15.8 times forecast earnings. By comparison, the UK's National Grid Plc trades at 12.5 times forecast profit while Italy's Terna and France's EDF trade at 15.8 and 15.65 times forward earnings, respectively.
The Coal India share sale received bids worth more than 15 times the shares on sale and made a spectacular 40 percent gain in its trading debut on Thursday.
"I wouldn't call this offer as fundamentally attractive as Coal India, but its strengths cannot be overlooked. It has its own growth story," Mital said.
Last month, Power Grid posted a 42 percent jump in net profit in the quarter ended September to 6.5 billion rupees.
The share sale opens on Tuesday and ends on Friday.
Power Grid's core transmission business has been growing at about 20-25 percent a year.
"With commissioning of private IPPs (independent power plants) this is bound to increase tremendously in times to come," said Chairman S.K. Chaturvedi, a veteran human resources executive with stints at Indian state companies including Steel Authority of India Ltd and NTPC.
He took up his current position in 2008.
Power Grid's capital spending plan for its current five-year plan is 550 billion rupees ($11.3 billion), about half the 1.2 trillion rupees earmarked for its next five year plan, Chaturvedi told reporters.
The government said on Monday it is on track to reach its target of raising roughly $8.5 billion from share sales in 2010/11.
It aims to bring down its fiscal deficit by selling stakes in some 60 state-run firms over the next few years, but efforts to shed stakes in already listed companies have met with mixed success.
Sales of stakes earlier this year in already-listed NTPC and NMDC were fully subscribed only after state-run insurers and banks snapped up shares that were largely ignored by retail investors. A $760 million share sale by listed Rural Electrification Corp saw stronger demand.
Retail investors and employees will be offered a 5 percent discount on the issue price, the firm said in an exchange filing on Monday. Power Grid has a market value of nearly $10 billion.
Half of the 841.7 million shares on sale are part of the government's existing stake in the firm, and half are newly issued shares by the company. The company will use the proceeds of the fresh issue to build nine country-wide high-capacity power transmission corridors.
The stock is down nearly 11 percent this year, underperforming a 19.4 percent rise in the benchmark index.
Goldman Sachs, JPMorgan, SBI Capital Markets and ICICI Securities are lead managers for the share sale by Power Grid.
(US$1 = 44.22 rupees)
(Writing by Tony Munroe; Editing by Anshuman Daga)