The proposed sale of another 10% government stake in Coal India (CIL), on which the Centre’s FY16 non-tax revenue hinges a lot on, is unlikely before April. Despite the Cabinet clearing the stake sale last month, reflecting the government’s keenness to push it through in FY16, a lack of appetite among potential investors as well as objections raised by some existing stakeholders in the world’s largest coal miner could upset the plan, sources familiar with the matter told FE.
Some potential foreign investors have backtracked citing pressure from green activists not to touch polluting companies at a time climate change is engaging global attention like never before. To make matters worse, global merchant bankers have stayed away from the line-up for managing the big-ticket issue, a rare event in itself, the sources said. Even domestic institutional investors (DIIs), including LIC, which usually comes to the government’s rescue when market appetite for such stake sales are low, are circumspect this time around, they added.
The proposed CIL disinvestment, if it materialises, would be the third instance of a stake sale in the PSU since its 2010 IPO. The government stake in the PSU after 10% was offloaded in January this year is 79.65%. The department of disinvestment (DoD) recently selected five domestic bankers to manage the proposed CIL issue as part of its strategy to complete preparations irrespective of the timing of the sale.
While the recent volatility in the CIL stock has hurt sentiment, some existing investors, especially foreign institutional investors (FIIs), are annoyed with the plan for another stake sale within one year of the last one in January.
They complain that the stock has already been hammered. Some of them are learnt to have gone to the extent of expressing their desire to exit from CIL if the Centre goes ahead with the proposed stake sale in FY16.
At the current price of Rs 337 a share, CIL, one of the highest dividend-paying companies, could fetch the exchequer about Rs 20,000 crore with a 10% stake sale. The CIL stock is down nearly 24% from a 52-week-high adjusted price of Rs 447 seen on August 5 — it closed at Rs 341.50 on Tuesday. In January 2015, the government had sold 10% in CIL to raise the highest ever amount of Rs 22,557 crore from any single PSU stake sale at a price of Rs 358 a share.
Like its IPO in October 2010, the offer for sale in January was oversubscribed by many times, indicating the robustness of the stock then.
However, with crash in commodity prices beating down commodity stocks globally, there is not much appetite for energy sector stocks like CIL (although CIL’s coal price is somewhat insulated from global prices and is holding relatively firm due to a domestic shortage). Investors have also listed issues of inefficiency, high salary structure compared to peers and trade unions as negatives for the miner.
Of the total non-government holding of 20.35% in CIL, FIIs hold 9.04%, followed DIIs (8.6%), which includes LIC (6.67%).
Of the FY16 disinvestment target of Rs 69,500 crore, Rs 41,000 crore was to come from PSU stake sales and Rs 28,500 crore via strategic stake sales including privatisation of some PSUs. The government has come to terms with the prospect of raising less than Rs 30,000 crore through this route.
The Centre has raised Rs 12,700 crore as disinvestment revenue so far this year.