Mumbai: The government will likely advance a sale of shares in state-run Rashtriya Chemicals and Fertilizers Ltd (RCF) to middle March, scheduling it for the current fiscal rather than the next, according to three persons close to the development.
The government has speeded up decision-making and shortlisted lead managers for the follow-on offer of a 12.5% stake that’s likely to raise Rs.350 crore at the current stock price. IDBI Capital Ltd and ICICI Securities Ltd have been chosen as the lead managers.
“There was a presentation last Friday and the lead book runners were declared over the weekend,” said one of the persons cited above, an official in the department of disinvestment that’s part of the finance ministry. Investment bankers had been asked to submit bids by 15 January.
The shares will be sold through the offer for sale (OFS) method, the person cited above said, requesting anonymity. “The road shows will be conducted in India, Hong Kong and Singapore in the beginning of March.”
Holding the sale in March will mean the money raised will accrue to the government in the current fiscal, helping it get closer to its asset-sale target and rein in the ballooning fiscal deficit. India has only raised Rs.6,900 crore from stake sales in the year that started 1 April, compared with a budgeted target of Rs.30,000 crore.
An early sale will also take advantage of the surge in stock prices of late, although the RCF stock itself has been a laggard over the past year. RCF fell 0.36% to Rs.54.95 Thursday on BSE, while the benchmark Sensex rose 0.23% to 20,026.61 points. RCF has slumped 11% in the past year while the Sensex has risen almost 20% in the period.
While it’s not known whether the money will be raised in tranches, the pricing of the issue will be decided two-three days before the sale.
“We are seeing immense interest from institutional investors at this point of time,” said one of the three persons cited above. Currently, the government holds a 92.5% stake and plans to bring this down to 80% through the sale.
The disinvestment department official said sentiment improved dramatically for the fertilizer sector after the new urea policy was announced on 13 December 2012. RCF gained about 6% over the next week after the new policy was cleared by the cabinet committee of economic affairs. It has declined since then.
The new policy aims at expanding fertilizer production capacity in the country and attracting fresh investment of about Rs.35,000 crore to increase domestic output by 8 million tonnes (mt). India consumes around 60 mt of fertilizers a year and imports nearly 30% of what it needs, according to the ministry of chemicals and fertilizers.
Under the new policy, the government will give a 12-20% post-tax return on fresh capital infused by manufacturers for setting up new plants and revamp of existing ones. To ensure the returns, the government will cover 80% of the cost of natural gas, the main raw material required to manufacture fertilizers.
The impact of the measures on fertilizer company profits will show only after four-five years, said Balwindar Singh, analyst at Emkay Global Financial Services Ltd.
“It will take about two-three years to set up the new plants or expand capacity,” he said. “Another 9-12 months will be the stabilization phase for the plants.”
However, Singh added that the subsidy burden on the government will drop sharply and the earnings of the fertilizer producer will also see an increase. Currently, the price differential between imported urea and urea produced locally is $70 per tonne, according to Singh.
“We argue that with better profitability, improvement in return ratios, reduced dependency on government for subsidy and lower working capital requirement, reduced government intervention and company’s ability to charge premium for their products, fertilizer companies have strong scope for re-rating,” Emkay said in its report.
However, a maximum retail price has been set for the sale of fertilizer at Rs.5,360 per tonne. Hence, returns will vary depending on the cost-efficiency of fertilizer producers.
RCF has plans to add 7,700 tonnes per day (tpd) worth of new urea capacity in India—3,850 tpd each at Thal (Maharashtra) and Talcher (Orissa), Mint reported on 23 December.
“The FPO (follow-on public offer) is likely to see robust response from investors as it is structurally a sound company. RCF has also finished the de-bottlenecking in its Thal production facility, which will help the company increase production by 0.2 mt, in addition to the capacity addition there,” an analyst at HDFC Securities Ltd said on condition of anonymity.