Mumbai/Kolkata: The initial public offer (IPO) of state-owned Coal India Ltd (CIL) received bids for around one-third of its shares after it opened for subscription on Monday.
The sale of 10% of the company’s equity is the biggest ever in India and is expected to fetch the government between Rs13,923 crore and Rs15,160 crore.
Market participants have been wary about the issue because of fears that liquidity in the secondary market may be affected by the huge cash institutions and individuals are likely to deploy for this issue.
At the upper end of the price band, the issue size is only 9% less than the Rs16,712 crore that has been raised so far in India’s primary market this year. On Monday, the bellwether Sensex index fell to a low of 19,870 points in early trade before closing at 20,168.9, a 0.24% rise.
“We are getting a good response although it is difficult to say right now how large the subscription would be,” said Nandip Vaidya, president, retail broking at the IIFL group. “Retail investors typically come in only at the later stage of the book-building process and we see very healthy appetite among them for this issue.”
On Monday, the subscription in the qualified institutional buyer (QIB) category was 63% of the allotted quota, while that in the retail investors category was 10%. Overall bids were 34% of shares on offer.
The issue of more than 631.6 million shares closes on Wednesday for investors in all categories except retail investors, who get an extra day at a 5% discount. Ten per cent of the issue is reserved for employees and retail investors can subscribe up to 35% of the balance.
Employees haven’t been enthusiastic about the issue. Only 87,425 of the 63 million shares, or the 10% reserved quota, have been subscribed so far, data from the National Stock Exchange showed.
CIL chairman Partha S. Bhattacharyya expects employee subscription to remain muted because of opposition from trade unions. The management had expected at least half of the over 400,000 employees on the payroll to subscribe to the IPO, but that is unlikely to happen, he said.
The CIL issue may prove to be a litmus test for the government’s disinvestment programme, especially since past issues such as those of NMDC Ltd and SJVNL Ltd got lukewarm responses from investors owing to pricing concerns.
At least three other state-owned firms—the Shipping Corp. of India Ltd, Hindustan Copper Ltd and MOIL Ltd, another mining company, have filed their draft prospectus with the market regulator.
CIL’s issue is priced at Rs225-245 a share. This, plus a strong cash flow, rising profitability and a near monopoly position in coal have ensured the firm has received rave reviews from most analysts despite risks of regulatory obstacles and left-wing extremism.
A key risk is a government proposal to share 26% of profits with local people that could bring down net earnings.
Bhattacharyya, however, ruled out a major impact, saying his firm needed to raise coal prices by only around 5.5-6% to mitigate its effects. He also pointed out that the proposed introduction of International Financial Reporting Standards (IFRS) from April could shore up CIL’s net profit this year by up to Rs3,000 crore. Coal miners in India have been making financial provisions in their accounts towards in increase in mining costs as the life of a mine advanced, but under the IFRS norms, there is no scope to make such provision and they would be able to report that portion as part of their profits.
Ashwin Ramarathinam contributed to this story