The National Hydroelectric Power Corporation (NHPC) public issue is in a limbo. The Securities and Exchange Board of India (SEBI) has warned the PSU that it will cancel the draft prospectus filed by the company for its proposed initial public offer (IPO) if it fails to appoint independent directors by next week.

NHPC needs to appoint seven independent directors on its board to comply with clause 49 of SEBI's listing agreement. In case SEBI goes ahead and cancels the draft prospectus of the company, the hydro power major will have to file the draft red herring prospectus afresh after the appointment of the stipulated number of independent directors on its board.

This will not only delay the proposed offer further but could also dampen its prospects due to the high volatility in the market at present. Government sources said there was a likelihood that the NHPC IPO would be kept on the backburner as the power ministry is pre-occupied with the appointment of independent directors on the board of Rural Electrification Corporation (REC) and facilitating an early IPO of the PSU.

"Currently, we are focusing on the REC public offer. Once this is over, we will look at other issues," a power ministry official said. This could mean loss of valuable time for the NHPC issue. The draft red herring prospectus of the issue was filed in April last year when markets were bullish and the offer could have fetched a good premium.

According to SEBI guidelines, at least 50% of the members of the board of a company wishing to list in the share market must be independent directors. NHPC had filed the draft prospectus in April last year and expected to launch the issue in July.

But the issue of independent directors has delayed the IPO. Even though the process of appointment of independent directors was initiated early last year, the government has failed to take a decision in the absence of suitable candidates.

The NHPC public offer involves issuing 10% fresh equity in the market, while the government will piggyback on it and divest 5% of its stake in the corporation. After the IPO, the government's stake in the PSU will come down to about 86.30%. NHPC has a paid-up capital of Rs 10,600 crore and an authorised share capital of Rs 15,000 crore.