CIL set to take India into IPO big league

CIL set to take India into IPO big league

Mumbai: Coal India Ltd (CIL) will soon raise close to 15,500 crore in its initial public offer, or IPO, signalling the nation’s entry into the league of gigantic new share sale offers.

Coal minister Shriprakash Jaiswal announced the price band for the Coal India offer at 225-245 a share, PTI reported on Tuesday.

At the upper end of the band, the government expects to raise Rs15,470 crore, more than one-third of its Rs40,000 disinvestment target for this fiscal.

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The government is selling 631.6 million shares, or 10% of its stake, in India’s largest coal producer.

Coal India will be the third public sector unit in the primary markets this year after SJVN Ltd and Engineers India Ltd raised a total of Rs2,056 crore.

It will also be India’s largest new share sale offer, higher than the Rs11,700 crore raised by Reliance Power Ltd at the height of the previous bull run in January 2008.

Still, it only amounts to one-twentieth of the $70 billion (Rs3.12 trillion) that Brazilian oil company Petroleo Brasileiro SA, or Petrobras, raised last month.

Across emerging markets, companies are raising larger sums than ever before, their confidence fuelled by large Western institutional investor inflows.

In July, Agricultural Bank of China raised $22.1 billion. AIA Group, the Asian subsidiary of American International Group, seeks to raise $20.57 billion in Hong Kong, while Malaysia is looking to sell $3 billion of stock in the Petronas Chemicals Group, in what would be that country’s largest ever IPO.

Overall, emerging market companies have raised $138 billion from IPOs and follow-on offers in the September quarter, more than double the $62 billion mopped up in developed countries, the first time this has happened, Bloomberg reported on 30 September.

Merchant bankers and analysts expect this trend to continue as the US prepares for another tranche of quantitative easing to prop up its economy and Western investors chase returns in emerging economies.

“There will be a good appetite (for Coal India’s IPO) if it’s priced correctly," said Tarun Kataria, chief executive of Religare Capital Markets Ltd.

After facing criticism over the pricing of some issues such as NMDC Ltd earlier this year, the government seems to have done just that by pricing it at Rs225-245 a share.

At the upper end of the price band, the trailing price-earning multiple of Coal India is 15.7, lagging the Sensex’s multiple of 23.93.

“This time the government has left a lot on the table for investors," said an analyst with a local brokerage, who didn’t want to be identified as he can’t be quoted in the media.

The price values the company, which has cash reserves of 9,077 crore, at some 1.56 trillion.

It also has estimated coal reserves of 64.78 billion tonnes, of which 52.54 billion tonnes are “proven" and 21.75 billion tonnes “extractable", according to the prospectus filed with the market regulator.

This makes it the owner of the world’s largest coal reserves, much ahead of US-based Peabody Energy Corp., the largest private sector coal miner with 9 billion tonnes of reserves.

“Coal India is well placed to benefit from the boom in demand for coal. Its growth is constrained by its own production," said the analyst mentioned above. “Its pricing is at a discount to international prices and there is scope for improvement there too."

A 6 September report by IIFL Group estimated that India’s coal shortfall is set to widen from 65 million tonnes (mt) a year in fiscal 2010 to 155 mt by fiscal 2013.

Additional Indian demand will amount to about 20% of current global trade in thermal coal, causing regional prices to firm up, it said.

One-tenth of the issue is reserved for employees. Staff and retail investors get a 5% discount to the announced offer price, minister Jaiswal said.

The bankers to the issue are Citigroup Global Markets India Pvt. Ltd, Deutsche Equities (India) Pvt. Ltd, Bank of America-Merrill Lynch, Enam Securities Pvt. Ltd, Kotak Mahindra Capital Co. Ltd and Morgan Stanley India Co. Pvt. Ltd.