The Indian government’s disinvestment drive is set to get a boost with at least three big ticket divestments lining up in the next few weeks. Bankers say they have received good response to the road shows held abroad for Coal India, Indian Oil and PowerGrid.
Of this, Coal India will be the first to hit the market with a 5% dilution of Indian government’s 90% stake in the company. PowerGrid’s Rs 7,500 crore stake sale will take place by the first week of December while Indian Oil disinvestment will take place by mid-December. The final call on the pricing and timing will be taken by the government.
In his budget announced in February this year, the finance minister P Chidambaram had set an ambitious target of Rs 55,000 crore by selling part of government’s stake in public sector units. But till date, the target is far from being met due to volatility in the Indian currency. Bankers hired by Indian government are now meeting investors across the world to gauge their mood and sell the shares.
“We have received very positive response from investors abroad and there is a demand for Coal India and Indian Oil paper,” said a banker close to the development. Not only the shares of these companies have gone down substantially, a weak rupee will help foreign investors to buy shares in these companies, bankers say.
The road shows were held in Singapore, Hong Kong, UK and Germany. “As long as the government leaves something on the table for the investors, they will be keen to invest,” said the banker. “All meeting halls were full of investors abroad thus showing that there is a demand for the company’s shares.
Investors are also enthused by the fact that Coal India shares which closed at Rs 272 on the Bombay Stock Exchange on Wednesday – are down 5% in the last one month. The stock is down 23% since January this year even as the BSE Sensex was up 7% during the same period.
A 5% stake sale will help the government to raise close to Rs 8,600 crore. Bankers say typically shares of a company slated for disinvestment falls sharply as investors try to take advantage of a discount which the government offers before the offer opens.
The road shows for Indian Oil to sell 10% of Government stake is also on overseas with the government planning to raise close to Rs 4,900 crore as of today’s closing of Rs 201 a share.
| Up for sale | ||
| Company | Stake (in %) | Stake value |
| IOC | 10% | Rs 4,900 cr |
| Coal India | 5% | Rs 8,600 cr |
| PowerGrid | 17% | Rs 7,500 cr* |
| Hindustan Zinc | 29.5% | Rs 21,600 cr |
| * includes fresh issue of shares |
“Both Coal India and Indian Oil are large cap names and their fundamentals are strong. Hence, it will not be a problem selling the issue, “a banker said. IOC is also down 25.5% since January this year and FIIs are keen to invest in the company, bankers said.
The follow-on offer of Power Grid Corporation will open in the first week of December to raise close to Rs 7500 crore. The government will disinvest 4% of its 68% stake. It will also issue fresh equity of 13% of existing capital. Powergrid is also down 19% since January this year.
Bankers say the government’s stand on selling its residual share in Hindustan Zinc and Balco worth Rs 24,000 crore is important as it will help it to meet its divestment target. But the controversy over mines ministry’s objection that HZL sale can take place only after the approval of the Parliament is delaying the process. The access to cash worth Rs 21,000 crore in HZL’s balance sheet is an important reason why Vedanta is keen to buy government’s stake in the company.
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