Putting divestment back on track, the government has decided to sell five per cent stake in Power Finance Corporation [Get Quote] in tandem with the power PSU's initial public offer that would raise up to Rs 1,500 crore (Rs 15 billion).

"The government will ride piggyback on the PFC IPO to divest five per cent stake. The Cabinet has approved the proposal," power secretary R V Shahi said on the sidelines of a seminar in New Delhi on Tuesday.

As such PFC is expected to hit the market in the next 3-4 months to float fresh equity of 10 per cent through its maiden public issue of 10.3 crore (103 million) new shares.

"It will be like the NTPC offer," he said, adding the company will issue 10 per cent fresh equity.

Asked what is the amount likely to be raised, he declined to comment. However, sources said it could be in the range of Rs 1,000 crore (Rs 10 billion) to Rs 1,500 crore.

PFC, a non-banking finance company for the power sector, will only be the second public-sector power firm to get listed on the bourses after NTPC Ltd [Get Quote].

The government had divested 5.25 per cent stake in power giant NTPC during its public offer of an equal amount in 2004. NTPC had raised nearly Rs 5,400 crore (Rs 54 billion), of which government had mopped up its share of about Rs 2,700 crore (Rs 27 billion).

PFC would only be the second government company for divestment after Maruti [Get Quote] if it hits the market this fiscal. On the whole, it would be only the third after NTPC and the carmaker on the divestment list of UPA government, which is facing stiff opposition from Left parties over the issue.

Power Finance Corp's has a paid-up capital of Rs 1,030 crore (Rs 10.30 billion). This translates to 10.3 crore new shares of Rs 10 face value each. The government's part of divestment would be around 5.15 crore (515 million) equity shares.

Having a book value of Rs 65 per share, the company could charge some premium over this amount, industry sources said, adding the issue could be priced in the range of Rs 70-100.

However, the final price band as also the time when it hits the market would be decided in consultations with the merchant bankers, sources said.

At the outer limit, PFC could raise up to Rs 1,030 crore, while the government would collect Rs 515 crore (Rs 5.15 billion) as its share of divestment proceeds.

The divestment proceeds will go in the National Investment Fund for use in social sector projects and revival of ailing public sector undertakings.

The company posted a net profit of Rs 470 crore (Rs 4.70 billion) over a total income of Rs 1,563 crore (Rs 15.63 billion) for the first half this fiscal.