Govt’s divestment programme gets off to a flyer with SAIL share sale

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Mumbai | Published: December 6, 2014 1:10:35 AM

The government’s PSU stake sale programme for this fiscal got off to an impressive start on Friday...

The SAIL stock closed at R82.80 on the BSE after the day’s trading. (Reuters)The SAIL stock closed at R82.80 on the BSE after the day’s trading. (Reuters)

The government’s PSU stake sale programme for this fiscal got off to an impressive start on Friday, with the offering from SAIL, the country’s second-biggest steelmaker, receiving bids for more than double the shares on offer, even as Life Insurance Corporation remained only a modest bidder by its standards.

The 5% stake in Steel Authority of India (SAIL) that was sold via auction was subscribed 2.07 times as on 3.30 pm, stock exchange data showed, indicating proceeds of R1,720 crore or thereabouts for the government.

The SAIL stock closed at R82.80 on the BSE after the day’s trading.

SAIL-stakeHowever, given the belated roll-out of the stake sale programme and the hiccups in the Coal India disinvestment due to protesting unions, it is still early to bet on the government fully realising the budgeted capital receipts from selling stakes in government and private companies. CIL has to account for half of this year’s budgeted proceeds of R43,425 crore from PSU
disinvestment.

The targeted revenue from disinvestment this fiscal is R64,925 crore (including R15,000 crore form sale of the government’s residual stakes in Hindustan Zinc and Balco, both majority-owned by the Vedanta Group and 5% stake in Axis Bank held though SUUTI). Before SAIL’s offer for sale (OFS), the government had mobilised zilch.

Disinvestment proceeds last fiscal was much lower than the target at R16,027 crore.

Retail investors, who had 10% of the shares reserved for them under SAIL’s OFS, bid for two-and-a-half times the shares allotted to them — for 5.49 crore shares against 2.065 crore shares on offer, to be precise.

“I think the offer received fantastic response from retail investors,” said V Jayasankar, ED and head of equity capital markets, Kotak Investment Banking. Retail investors have got a 5% discount to the bid price of R83 apiece.

Sources with direct knowledge of the matter said that the auction saw a “good mix” of foreign institutional investors and their domestic counterparts. Both categories of institutional investors “evenly” participated in the auction, they said.

LIC is believed to have bid for about one-third of the deal size but this could not be independently verified. An LIC official confirmed the insurance company’s participation in the auction, but refused to give further details on the amount invested.

According to certain brokerages, their retail clients started enquiring about SAIL’s stake sale only in the afternoon. “They were not prepared with enough funds in their accounts. They were requesting for more time or asking the broker to pay on their behalf. For bids in retail category, the clearing corporation needs to collect the full amount, under the new regulations,” said a broking head of a top brokerage house based in Mumbai.

The non-retail portion was subscribed 2.01 times. More than 37.43 crore shares were bid against 18.58 crore on offer.

The government was planning to start its FY15 disinvestment drive with big-ticket transactions like ONGC and Coal India.

However, gas pricing issues in the case of the former and the threat of a strike by workers’ unions in CIL’s case prompted the Centre to revise its strategy and begin with SAIL. The government was once again pushed on the back foot after SAIL shares declined more than 35% from the high of Rs 110.15 in June 2014.

“If you look at banker appointment, documentation, road shows and then launch, SAIL is the only one that has completed everything. Markets had come off a bit and the government was debating what to do but if you look at the state of readiness, yes, it could be the first one,” said a top official of a global investment bank, requesting anonymity.

Friday’s transaction means the government (promoter) holding in SAIL will drop to 75% in the state-owned steelmaker and make it compliant with Securities and Exchange Board of India (Sebi) minimum public shareholding norms. In June 2014, the market regulator mandated all public sector companies to bring down promoter holding to 75% or below by June 2017.

Axis Capital, Deutsche Equities India, HSBC Securities and Capital Markets, JPMorgan, Kotak Investment Banking and SBI Capital Markets were the advisers to the government on the stake sale.

This was the second of the two tranches in which the government sold its stake in SAIL. In March 2013, the government had sold a 5% stake at a floor price of Rs 63 per share. Of the total Rs 1,516 crore raised by the government, LIC had acquired 4.107% in SAIL by investing Rs 1,068 crore.

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