The government will on Friday sell 10% stake in Coal India (CIL) in two tranches of 5% in what could be called the biggest equity offering in the Indian capital markets.
The Centre on Wednesday announced that it will sell 5% stake (31.58 crore shares) in CIL with an option to sell an additional 5% stake via the green-shoe option, according to a stock exchange filing. The stake sale is likely to fetch the Centre Rs 24,258 crore at the current market price of Rs 384.05 apiece.
The government has reserved 20% quota of the offer size for retail investors to whom the government will offer 5% discount on the bid price, the stock exchange announcement said. On Wednesday, the scrip closed 0.3% higher on BSE at Rs 384.05 per share.
Experts say there is an appetite for CIL shares citing consistent improvement in the company’s coal production and offtake, along with valuations. While CIL has gained over 32% in 2014, analysts believe the current valuations are attractive given the long-term fundamentals of company.
“The current disinvestment overhang notwithstanding, we maintain that CIL remains a good long-term story,” said Anirudh Gangahar, analyst, Nomura in a note to investors.
Ambit Capital, too, maintains a positive outlook on the stock on account of sharp recovery in the production. After the recent run-up in the stock price, our DCF-based target price to Rs 433 implies 10% upside,” Ambit said in its research note.
Twenty two analysts have ‘buy’ rating on the stock, 18 maintain ‘hold’ and nine have assigned ‘sell’ rating on the stock, shows an analysts poll conducted by Bloomberg.
FE had earlier reported that CIL had received positive response from fund managers and institutions such as JPMorgan, Investec, Anderson Strathern Asset Management, Baillie Gifford and First State Stewart during investor roadshows in October-November 2013. Roadshows were conducted in New York, Boston, Kansas City, San Francisco, London, Edinburgh, Amsterdam, Hong Kong, Singapore and Sydney. Bank of
America Merrill Lynch, Credit Suisse, Deutsche, Goldman Sachs, JM Financial, Kotak Investment Banking, and SBI Capital Markets are managing the CIL auction.
The government had proposed to sale 10% stake, drawing opposition from the workers’ union, forcing the government to rethink strategy and split the stake sale in two tranches of 5% via OFS. As per stock exchange data, the government holds 89.65% stake in the company. After the stake sale, the government holding will likely fall to 79.65%.
CIL had sold 10% stake and raised Rs 15,200 crore through its IPO in November 2010. The issue was subscribed 15.28 times on the final day of book building process. The company is required to pare its stake to 75% under the Sebi minimum public shareholding (MPS) norms.
Friday’s auction in CIL means the 5% stake sale in Power Finance Corporation (PFC) is pushed for next week. So far in FY15, the government has raised Rs 1,719.54 crore from the 5.82% auction of Steel Authority of India (SAIL) which was bailed-out by Life Insurance Corporation (LIC) of India.
The government has set a target to raise a total Rs 58,425 crore, of which Rs 43,425 crore is planned through PSU stake sale and the balance from selling residual stake owned by a government agency in erstwhile PSUs. The Centre was heavily dependent on CIL and ONGC to meet its target.
However, the 5% stake sale in the upstream oil and gas company ONGC is likely scrapped after receiving “poor” feedback from foreign investors during the international roadshows. Investors had raised concerns over ONGC’s subsidy burden, which if remained unresolved would deplete the company’s cash reserves as it planned a massive capital expenditure (capex) programme.
The government put its plans to sell 11.36% stake in NHPC on hold, and also delayed the launch of RINL and HAL initial public offerings (IPOs) to next fiscal. Hindustan Zinc (HZL) and Balco also hit the hurdle after the Supreme Court initiated probe in the 2002 disinvestment, forcing the government to rethink its disinvestment strategy.