Mumbai: State-owned steel maker Rashtriya Ispat Nigam Ltd’s initial public offer (IPO) of Rs.2,500 crore slated to open on 15 October has been called off by the steel ministry over valuation issues.
The company’s road show in Mumbai planned for 10 October has also been deferred.
This is the third time Rashtriya Ispat’s share sale is being put off. A market crash put paid to the first attempt and a fire at the company’s plant in Vishakapatnam, the second.
“The pricing of the issue was not reasonable,” said an official in the department of disinvestment. The investment bankers gave a valuation that was below the book value and the steel ministry did not agree to go ahead with the plan, he said.
The price given by bankers was about 27-30% lower than that expected by steel minister Beni Prasad Verma, the official said. The price band suggested by the investment bankers was Rs.16-Rs.18 per share.
“Another crucial reason for the deferment is that the government does not want to kick-start its divestment process with an additional discount,” said another divestment department official.
A ministerial group led by finance minister P. Chidambaram was scheduled to meet on Tuesday to decide the pricing of the IPO that will involve divestment of 10% of Rashtriya Ispat’s equity. “The meeting has been cancelled,” another official said. All officials spoke on condition of anonymity.
A Rashtriya Ispat official confirmed the development. “The ultimate decision rests with the government and we are not sure when the talks will resume,” he said. The bankers gave a lower valuation because the sectoral outlook was not robust, he said.
Rashtriya Ispat’s public relations agency sent an email stating the issue had been “postponed due to unavoidable circumstances”.
Sixteen IPOs have taken place so far this year, compared with 37 in 2011, Mint research showed. Two IPOs have been deferred. This is in sharp contrast with the number of companies going public when the economy was doing well. In 2007, 100 IPOs raised Rs.34,179.11 crore. In 2000, 123 IPOs raised Rs.2,953.11 crore.
Rashtriya Ispat’s prospectus was filed with the Securities Exchange Board of India (Sebi) in May this year. The company had received cabinet committee on economic affairs approval for a stake sale in January.
The government’s plan to sell shares in Rashtriya Ispat is part of its disinvestment strategy under which it aims to raise Rs.30,000 crore this fiscal year. Apart from Rashtriya Ispat’s primary offer, the government has shortlisted six more companies for its divestment plan.
“We have lined up all the cases for the next six months. The first case (Rashtriya Ispat) is coming up sometime this month,” Chidambaram told reporters at the Economic Editors’ conference in New Delhi on Monday.
According to the market regulator Sebi, listed non-state companies need to have at least a 25% public shareholding by June 2013. State-owned companies need to ensure this is at least 10% by August next year.
Rashtriya Ispat’s steel production stood at 1.24 million tonnes in April-September, according to the joint plant committee set up by the government to collect data on steel.
One key reason for the valuation divergence could be the destructive fire that broke out in the heart of Rashtriya Ispat’s Vishakapatnam plant in June, experts said. The firm, which produces three million tonnes per annum (mtpa) of the alloy at Vishakapatnam, hopes to raise capacity to 6.3 mtpa by the end of this fiscal 2012-13.
Production fell by 6.2% in April-September from the year-earlier period.
“This could be one reason which is reflecting in the proposed pricing,” said an investment banker at Edelweiss Securities Ltd.
Another investment banker said the deferment of this issue will not have any impact on the overall IPO market as sentiment is beginning to turn positive and retail investors are returning. “The valuation disconnect could be in relation to the sector outlook of steel and not with the market situation,” he said. Both bankers requested anonymity.
Steel consumption saw an annual decline of 2% in September, official data show.
“We continue to maintain our stand that in the wake of subdued demand and rising supply from top steel players, steel companies will have to increase exports and curb imports, leading to steel prices moving from import parity to export parity,” Nirmal Bang’s institutional equities research said in a report on the steel sector on 9 October. “We retain our sell rating on all major steel companies.”