Even as the outlook for metal sector remains bleak, the government has decided to dilute its equity stake in steel maker SAIL at a minimum of Rs 63 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 per cent of the total paid up equity share capital of the company. On Thursday, shares of SAIL closed at Rs 63.90, down 1.77 per cent.
At the floor price of Rs 63, the government will be able to garner a minimum of Rs 1,515 crore from the proposed offering, which would take the total divestment collections this year to around Rs 24,015 crore. Incidentally, finance minister P Chidambaram pegged this year?s divestment target at Rs 24,000 crore.
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 Rs 70 for diluting its stake in SAIL, while merchant bankers were comfortable with a price of Rs 60.
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 per cent discount to import parity, it adds. It also said that as compared to the global peers, Indian steel stocks are trading cheap after the recent correction. In the last month SAIL has fallen around 16 per cent while the Sensex has lost less than 3 per cent.
