New Delhi: The Union cabinet on Thursday cleared a move to disinvest 10% of the government’s equity stake in Steel Authority of India Ltd (SAIL) to raise an estimated Rs8,000 crore.

Divestment target: SAIL’s plant in Bhilai. The government will divest 10% of its stake followed by an offer of fresh equity to the public. Maitreyee Handique/Mint

The cabinet’s approval for SAIL’s FPO has two strands. The government would divest a part of its holding, which, at the current market price, would bring in Rs8,000 crore, or 20% of the current fiscal year’s disinvestment target.

In addition, SAIL would offer fresh equity to the public to the extent of 10% of the current holding, which would help it raise another Rs8,000 crore.

The FPO would be carried out in two tranches.

“There is no timeline," Chidambaram said, briefing the media on the decisions of the cabinet committee on economic affairs (CCEA).

Generally, the government appoints a lead manager after getting the cabinet’s approval. The lead manager would recommend the timing and price of the issue, which has to be cleared by an empowered committee of ministers.

Separately, a finance ministry official, who did not want to be named, said the government’s timeline for its borrowing is based on the assumption that most of the estimated Rs40,000 crore disinvestment proceeds would flow into the exchequer in the first half of the current fiscal year.

The government’s holding in SAIL after the FPO would be 69%, and the balance would be with the public, Chidambaram said.

SAIL shares dropped more than 7% on Thursday to end the day at Rs236.75 on the Bombay Stock Exchange, on a day the benchmark Sensex index lost 1.42%, or 255.62 points, to close at 17,714.40.

In March, Life Insurance Corporation of India (LIC) had to bail out NMDC Ltd’s FPO in March after institutional as well as retail investors mostly stayed away from the government’s largest divestment issue for the year.

Analysts had blamed poor marketing and the high price for the lukewarm response.

“The equity markets are inching towards 18,000 (Sensex level) and obviously the appetite for issues is back," said Vinay Menon, executive director, equity capital and derivative markets at JPMorgan India Pvt. Ltd. “But only for quality issues," he added.

No FDI in tobacco

The cabinet also decided to ban foreign direct investment (FDI) in cigarette making.

This follows commerce and industry minister Anand Sharma’s comments in March on the need to align FDI rules with other laws.

“Why should we have FDI in tobacco? There is a ban on smoking in public places. We are a responsible country," Sharma had said.

At present, the government allows 100% FDI in cigars and cigarettes manufacturing under the approval route and subject to obtaining industrial licence under the Industries (Development and Regulation) Act, 1951.

FDI in tobacco became a subject of debate after Japan Tobacco International (JTI) approached the foreign investment promotion board to raise its stake in its Indian venture to 74% from 50%.

The proposal was deferred as both the department of industry and the health ministry opposed the move. JTI is the maker of Camel and Winston cigarette brands and operates in India through JT International India Pvt. Ltd.

CCEA cleared two other proposals in its Thursday meeting.

Balmer Lawrie Investment Ltd’s governing board was reconstituted to carry out changes needed after the company’s administrative control was transferred from the department of disinvestment to the oil ministry. A proposal to provide financial support of Rs282.35 crore to the Indian Maritime University was also cleared by CCEA.

Asit Ranjan Mishra in New Delhi and Ravi Krishnan in Mumbai contributed to this story.