Mumbai: The Indian government is likely to price state run Coal India’s initial public offering at the top end of the price range, raising about $3.5 billion, four sources with direct knowledge of the matter said.
A panel of ministers will finalise the offer price late on Monday, the sources, who declined to be identified, said.
India is selling stakes in some 60 firms over the next few years, and the strong appetite for Coal India contrasts with the sluggish demand for some of its recent offerings and adds pressure on the government to price future deals attractively.
Coal India’s IPO, the largest in the country’s history, was subscribed more than 15 times by close on Thursday, with most bids at the top end of the Rs225 to 245 price range.
Individual investors and Coal India staff will get a 5% discount on the offer price.
At this price, Kolkata-based Coal India, which accounts for nearly 80% of coal output in Asia’s third-largest economy and is the world’s largest coal miner, would be worth $35 billion, ranking it seventh among India’s listed firms.
Its shares will begin trading on 4 November.
The government sold 631.6 million shares in the IPO, which received robust response from investors seeking exposure to an economy growing at 8.5%.
The institutional order book was heavily oversubscribed, with orders worth $27 billion from foreign investors. Those funds poured in on top of record flows from overseas into Indian stocks this year that recently pushed the rupee to a 25-month high.
A Reuters poll of fund managers had expected the IPO to be priced around Rs250 a share, with most of those surveyed keen to invest in the Indian miner.
Coal India’s IPO will 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.
On track for growth
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.
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 and triple its generation capacity over the next decade.
Coal India expects profits to rise by a quarter this fiscal year, helped by rising demand, and has set aside $1.2 billion for overseas acquisitions in the year to March 2011. It is currently evaluating proposals to buy stakes in coal firms in the US, Australia and Indonesia.
It reported earnings per share of Rs15.60 for the fiscal year ended March 2010 and would be valued at 15.7 times trailing earnings at the offer price.
China’s Shenhua Energy, the Indian miner’s closest rival, trades at 16 times earnings, while smaller Indonesian peer Adaro Energy has a ratio of 20 times. US miner Peabody Energy trades at 25 times earnings.
Local and foreign brokerages estimated that Coal India could see upside of roughly 30 percent from its IPO valuation range, given its lower earnings volatility, a large undeveloped resource base and potential to increase prices.
Morgan Stanley, Citigroup, Kotak Mahindra Capital, Enam Securities, Deutsche Bank and Bank of America-Merrill Lynch are managers on the offer.