Mumbai: Steel Authority of India Ltd’s (SAIL’s) offer for sale was fully subscribed on Friday, taking the total proceeds from divestment in state-run companies in the fiscal year to Rs.23,920 crore, just Rs.80 crore short of the government’s revised target.
The offer of the 5.8% stake in the state-owned steel company adds to the list of recent share sales that have succeeded on account of an attractive floor price at a discount to the market price. This ensured robust investor interest in state-run companies even as the broader market dropped with the benchmark S&P BSE Sensex posting its worst weekly decline in 15 months. The issue of 240.4 million shares to raise around Rs.1,515 crore was covered 100.4% as it received bids for 241.3 million shares. The floor, or the minimum offer price for the share sale, was set at Rs.63 apiece, a 1.41% discount to the Thursday closing price. It ended on Friday at Rs.63.40, down 0.78%.
While discount pricing has ensured success, it hurt existing shareholders as prices fell steeply. SAIL shares plunged 17.1% in the month preceding its offer for sale, and are down 30% year-to-date. National Aluminium Co. Ltd (Nalco), and Rashtriya Chemicals and Fertilizers Ltd had shed 11.1% and 11.5% in the month before their share sales went through. The government didn’t have any other option, said Rajen Shah, chief investment officer at Angel Broking Ltd.
“The government had no choice. This is the only way they can ensure their divestment plan goes through,” he said, pointing to the slump in the market because of weak economic growth.
“There is a target to meet, and the government cannot fulfil that without leaving something on table for the investors,” said Prasanth Prabhakaran, president of retail broking at India Infoline Ltd (IIFL).
Axis Capital Ltd, Deutsche Equities India Pvt. Ltd, HSBC Securities and Capital Markets (India) Pvt. Ltd, JP Morgan India Pvt. Ltd, Kotak Securities Ltd and SBICAP Securities Ltd were the merchant bankers for the issue.
According to a Press Trust of India report on Thursday, the auction, if subscribed fully, would take the proceeds from disinvestment in this fiscal to around Rs.23,920 crore, the highest ever realization on the disinvestment front in a single year.
“If a retail investor has to choose between investing into a slaughtered Mid-cap stock, and a PSU (public sector undertaking) offer for sale, the latter is definitely a better bet. These PSUs have sound fundamentals and they are relatively low risk,” Prabhakaran of IIFL said.
BSE’s Small-cap and Mid-cap indexes have dropped 21.8% and 14.5%, respectively, so far in 2013, compared with a 13.1% decline in the PSU index. The Small-cap and Mid-cap space has been battered so far in the year, with dealers attributing the decline to low interest from foreign institutional investors and operator-driven activities.
The 30-share S&P BSE Sensex shed 3.6% this week and closed at a four-month low, registering its biggest weekly loss since December 2011 as the near-term outlook for the market looks bleak in the light of political uncertainty and a likely end of the rate easing cycle. Cyprus bailout woes have hurt investor sentiment globally.
The benchmark Sensex declined for six consecutive sessions and closed 0.3% lower at 18,735.60 points on Friday, at its lowest close since 27 November, 2012. Eighteen of its 30 components closed in the red in the day and financials were among the top losers. Leading lender State Bank of India shed 1.7%, while smaller rivals ICICI Bank Ltd and HDFC Bank Ltd shed 0.66% and 0.23% respectively. The outlook for the market looks bleak in the week ahead in light of the current scenario. Political developments will be closely watched and the next big event to look out for would be March quarter earnings, analysts said.