FE Editorial : Insuring disinvestment
The Financial Express: Nov 24 2012, 03:25 IST
With a big chunk of the Hindustan Copper Limited (HCL) issue—estimated at around 30-40%—having been picked up by Life Insurance Corporation (LIC), the disinvestment has once again been rescued by the PSU insurance major. Perhaps that’s something the government anticipated the need for when it decided to hike individual company limits for LIC to 30% despite the insurance regulator opposing this—under IRDA rules, insurance companies cannot hold more than 10% of the equity of individual companies. Though the finance minister has said he was happy the issue had been oversubscribed—the minimum float was 3.7 crore shares as compared to the bid for 5.2 crore shares—the government has got just R808 crore of the R1,375 crore it would have got had the issue been fully subscribed at the floor price of R155. The fact that FIIs, the biggest players in the stock market, have largely stayed away from the issue is an indication of how little interest there was in it. And not surprisingly since, thanks to its small free float (0.41%), the share price has little connect with the company’s fundamentals. Despite the company’s copper cathode production falling and equipment and other production problems, the company’s 12-month trailing PE is a whopping 61—at the 42% discount, this is still 44 times.
The good thing, of course, is that the government has finally accepted issues need to be properly discounted if they are to be sold. At least two planned disinvestments were put on hold with the merchant banker-advised price below, in
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