Even as the outlook for metal sector remains bleak, the government has decided to dilute its equity stake in Steel Authority of India (SAIL) at a minimum of R63 per share, which is almost equal to its current market price. The offer for sale (OFS) will be launched on Friday.
According to a stock exchange announcement, the government will be offering 24.04 crore shares that represent 5.82% of the total paid up equity share capital of the company. On Thursday, shares of SAIL closed at R63.90, down 1.77%.
At the floor price of R63, the government will be able to garner a minimum of R1,515 crore from the proposed offering, which would take the total divestment collections this year to around R24,015 crore. Incidentally, finance minister P Chidambaram pegged this year?s divestment target at R24,000 crore while presenting the Union Budget last month.
Meanwhile, analysts and bankers feel that the government has taken a ?bold step? by pricing the issue almost on par with the market price. They say that the recent past has seen offerings being shunned by overseas investors due to unattractive pricing and domestic institutions pitching in to bail out the issue.
According to reports, the government was looking at a price of around R70 for diluting its stake in SAIL, while merchant bankers were comfortable with a price of around R60. According to sources, bankers wanted to price the offer at a discount as most investors have a bearish view on the metal sector even as the broader market is facing investor scepticism.
In a recent report, Nomura highlighted the fact that ?while global steel prices have been strong during past 2-3 months, Indian domestic prices have remained largely subdued.? Since Indian steel demand still remains weak, companies are finding it difficult to take price hikes despite trading at a 5-8% discount to import parity, it adds.
The foreign major, however, adds that compared to the global peers, Indian steel stocks are trading cheap after the recent correction. In the last one month, SAIL has fallen around 16% while the benchmark Sensex has lost less than 3%.
The SAIL OFS comes close on the heels of that of Nalco, in which the government mopped up around R515 crore. Stock exchange disclosures reveal that LIC accounted for 35% of the total bids received in the issue. LIC was also the single-largest bidder in the case of RCF wherein it bought 46.5% of the total 6.9 crore shares that were offered by the government.