Govt to sell 5% stake in SAIL via offer for sale route on Friday
2 min read 04 Dec 2014, 04:56 PM ISTShares to be sold at 5% discount to retail investors as govt hopes to raise `1,500-1,700 crore through stake sale
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Mumbai: To kick off its ambitious but much delayed disinvestment programme for the current fiscal ending March, the government has decided to sell a 5% stake in the Steel Authority of India Ltd (SAIL) on Friday at the floor price of ₹ 83 per share through the so called offer for sale route.
The shares will be sold at a 5% discount to retail investors. The government hopes to raise ₹ 1,500-1,700 crore through the stake sale, a finance ministry official said, speaking on condition of anonymity.
The floor price is at a 2.75% discount to the closing price of SAIL scrip that ended 0.35% down at ₹ 85.35 on BSE.
As much as 10% of the offered shares has been reserved for retail investors, who can buy shares worth up to ₹ 2 lakh in the share sale. A minimum 25% of the issue size will be reserved for mutual funds and insurance companies.
The 5% discount that the government is giving to retail investors may not be enough as market volatility in just one session could potentially wipe out the discount, according to Prithvi Haldea, managing director, Prime Database. “If the government wants to attract retail investors and wishes them to stay in the market for at least 3-6 months, it should give them at least 15% discount," Haldea said.
If the stake sales are priced right and the government kicks off the restructuring of state-run companies by filling the vacancies of chairmen and independent directors in the companies, then there will be enough appetite among investors for stake sales worth ₹ 40,000-50,000 crore, he said.
HSBC Securities, Deutsche Equities, J P Morgan India are among the six merchant bankers advising SAIL on the stake sale.
The finance ministry is seeking to capitalize on positive investor sentiment generated by the formation of a stable government after the election and hope of economic revival after two consecutive years of sub-5% economic growth.
The BSE’s benchmark Sensex has gained 34.9% since the start of the year, a period in which foreign investors have bought a net $16.43 billion of shares from local equity markets.
The cabinet of the United Progressive Alliance government had in July 2012 approved a 10.82% stake sale in SAIL. The first tranche of disinvestment of 5.82% was completed in March 2013.
The Narendra Modi government in its first budget set a disinvestment target of ₹ 58,425 crore, including ₹ 15,000 crore from the sale of residual stakes in some state-owned companies in which the government sold a majority stake between 1999 and 2004.
The cabinet committee on economic affairs in September approved stake sales in Coal India Ltd (CIL), Oil and Natural Gas Corp. Ltd (ONGC) and NHPC Ltd.
The government will sell a 5% stake in ONGC, the country’s biggest energy explorer, 10% in CIL, the world’s biggest coal miner, and 11.36% in NHPC, the state-owned hydropower producer.
The divestments through the so-called offer for sale (OFS) route are expected to raise a total of ₹ 43,800 crore, helping the government more than meet its target of raising ₹ 43,425 crore from stake sales in companies it controls.
It now owns 68.94% of ONGC, 89.65% of CIL and 85.96% of NHPC.
However, opposition from some trade unions may come in the way of selling stakes in the companies.
The proceeds from the sales could be used to bridge the government’s fiscal deficit in the year ending 31 March, projected at 4.1% of gross domestic product (GDP), and finance ambitious infrastructure projects such as one involving the creation of 100 smart cities. They could also go towards recapitalizing public sector banks and insurance companies.
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