New Delhi: Coal India Ltd IPO has attracted a whopping inflow of about Rs120,000 lakh crore from FIIs, more than the record Rs108,000 lakh crore (about $24 billion) they have invested in the Indian stocks so far this year.
Although about 90% of the funds are estimated to flow back after the IPO is over, the inflows have been impacting forex as well as the stock markets.
Sensex has fallen since the public offer opened on 18 October as CIL issue diverted funds from other equities, while the rupee has strengthened.
The state-owned Coal India Ltd’s (CIL) initial public offering (IPO) is the country’s biggest share sale so far, with the government looking at garnering up to Rs15,400 crore by selling 10 per cent stake in the world’s largest coal producer.
Bidding for the mega IPO closed yesterday for qualified institutional buyers, which includes the foreign institutional investors, mutual funds and insurance firms. And for the portion reserved for them, the issue was oversubscribed by a whopping 24.70 times.
The IPO, priced in a band of Rs225-245 per share, closed today for retail and non-institutional buyers. Overall, the issue has been oversubscribed 12.18 times (till 12:00 pm) as per the data available with the NSE.
The IPO has attracted a demand of 493,38,72,050 shares from FIIs. Calculated at the upper end of the IPO price band, this demand is valued worth Rs1,20,879.86 crore and at the lower end worth Rs1,11,012.12 crore.
Even at the low end, the inflows are higher than what FIIs have infused - Rs 1,08,379.60 crore during the entire year so far. This year’s inflow of Rs108,000 lakh crore ($23.77 billion) is the highest ever investment made by FIIs in a single year.
The huge FII inflow for the CIL issue has surprised many analysts, who were expecting around Rs70,000 crore to come in from this segment.
Money/forex market dealers were expecting some temporary volatility or strength in the currency during this period.
The rupee appreciated by another 4 paise to Rs44.30, against the US Dollar at the Interbank Foreign Exchange market in the morning trade today on the back of strong FII inflows, and appreciating Asian currencies against dollar.
Foreign investment in the Indian stock market crossed the magic Rs1 trillion-mark ($22 billion) for the first time in history last week and analysts have predicted the overseas inflows will continue to increase in the coming months.
“India is well on the path of reverting to its high- growth orbit in the current uncertain global environment. Thus, India would continue to attract global fund inflows, driven by its resilient domestic economy,” brokerage firm Angel Broking said in a note.
Heavy investor demand
A 5% discount has been offered to retail investors who often take their cue from institutions and were expected to place heavy orders on the final day on Thursday.
A dominant position in a country that is heavily reliant on coal-fired power and a valuation considered attractive relative to peers has made Coal India a near must-own for investors seeking broad exposure to an economy growing at 8.5%.
Still, risks exist, including a Maoist insurgency in key mining areas, as well as environmental challenges to new mining projects in the country.
Coal India’s prices are about 60% lower than international prices, in part because of comparatively low quality coal.
The IPO is on track to surpass Reliance Power’s $3 billion listing in 2008 as India’s largest new issue, and comes to market amid a flurry of big deals in Asia.
Coal India, whose shares will begin trading on 4 November, expects profits to rise by a quarter this fiscal year, driven by demand for electricity in India, three-quarters of which is fuelled by coal.
Demand for coal is forecast to grow 11% a year in India, which aims to halve its peak-hour power deficit of nearly 14% over the next two years.
At the top of its price range, Coal India would be valued at 15.7 times trailing earnings.
China’s Shenhua Energy trades at 16 times trailing earnings, while smaller Indonesian peer Adaro Energy has a ratio of 20 times. US miner Peabody Energy trades at 25 times earnings.
Morgan Stanley, Citigroup, Kotak Mahindra Capital, Enam Securities, Deutsche Bank and Bank of America-Merrill Lynch are managers on the offer.