New Delhi/Mumbai: With a helping hand from state-owned financial institutions, the government raised some Rs. 800 crore on Friday by divesting a 5.58% stake in Hindustan Copper Ltd in an auction that drew muted response from private investors.
Life Insurance Corporation of India (LIC), the country’s biggest insurer, State Bank of India (SBI), the No. 1 lender, and other public sector banks were among the largest buyers of shares in the auction on BSE and National Stock Exchange, market analysts said.
The government sold more than the 4% stake it had aimed at divesting in the auction, which revived the asset-sale programme aimed at raising Rs.30,000 crore to contain fiscal deficit within the targeted 5.3% of gross domestic product for this fiscal year. The poor investor response to the auction casts a shadow on the government’s ability to raise the money.
Analysts said the government’s base price of Rs.155 a share, which initially looked heavily discounted to the market price of the stock, seemed too high for private investors.
“The high valuation and the oversubscription to the 4% stake (sale) target suggests government financial institutions bought the shares,” said one analyst, who did not want to be named.
Shares of state-owned Hindustan Copper, the only company with copper mines in India, fell by the maximum permitted 20% to close at Rs.213.05 apiece on BSE on Friday.
“People were expecting the base price to be higher so they jacked up the prices (on Thursday). Now they are caught on the wrong foot,” said Alok Agarwal, an independent stock analyst. “So there is some offloading going on.”
Rakesh Arora, managing director and head of research at Macquarie Capital Securities (India) Pvt. Ltd, said the valuation should have been much lower. “Their own merchant bankers had suggested something like Rs.50-70 a share,” he said.
Arora said Hindustan Copper was trading at about 42 times its price-earnings multiple (P-E), which was too high compared with its mining peers. NMDC Ltd is trading at eight-nine times its P-E and Coal India Ltd at 10-11 times, he added.
“It’s a commodity company. How do you justify such a high P-E multiple?” questioned Arun Kejriwal, director of Mumbai-based research firm KRIS. “The government’s base price, that looked substantially discounted, showed its share price of Rs.266 (one day before the auction) was humbug.”
Kejriwal said that when the markets open on Monday, chances are institutions will sell the stock heavily until the current share price matches the base price set by the government.
The auction drew bids for 51.6 million shares, stock exchange data showed, representing 5.58% of Hindustan Copper’s capital.
The government offered 37.01 million shares, or 4% of the company, but had the option to sell a further 51.71 million shares. The government is likely to exercise the over-allotment option and allocate all shares for which it received bids, two persons with direct knowledge of the matter said.
The average bid was for Rs.156.56 a share against the floor price of Rs.155.
Mines minister Dinsha Patel had said on Wednesday that the government may raise the size of the stake sale to 9.59% if demand exceeded the shares on offer. With this sale, about 6% of Hindustan Copper’s shares will be publicly held, from 0.41% earlier.
Other asset sales may draw better responses from investors, analysts said. The government is due to sell stakes in NTPC Ltd, NMDC Ltd, Oil India Ltd, National Aluminium Co. Ltd and Steel Authority of India Ltd before the end of the fiscal year.
“NTPC and NMDC look okay. They are better companies in the form of (future) prospects,” Arora of Macquarie Capital said. “They also have more liquidity in the market, so the price will be well discovered.”
The government is under pressure to raise money to bridge its ballooning fiscal deficit, which has been a factor contributing to inflation that has remained persistently high, reducing the room for the Reserve Bank of India to lower interest rates to boost economic growth.
The sale of second-generation telecom spectrum flopped this month, raising just a quarter of the Rs.40,000 crore the government had targeted.
To be sure, the remaining share sales, coupled with a possible sale of the government’s residual stakes in Hindustan Zinc Ltd and Bharat Aluminium Co. Ltd, may help the government attain its asset-sale target, Macquarie’s Arora said.
“We will go forward with the disinvestment processes as approved by the CCEA (cabinet committee on economic affairs) between now and March... I hope that we can collect the targeted Rs.30,000 crore,” finance minister P. Chidambaram said.
PTI and Reuters contributed to this story.