After the fiasco over share sale of Oil and Natural Gas Corporation (ONGC) in March this year, the government has softened its stand over the pricing of its share sales.
The floor price for sale of government's 4 percent stake in state-run Hindustan Copper was set at Rs 155 a share today. This is at 41.79 per cent discount to company's current share price at Rs 266 on the stock exchanges, which is a steepest discount the government has offered ever for selling its stake in any company. The offer for sale will open on Friday.
Experts say, this floor price may ensure that the issue sales through and create a feel good factor in the stock market too. The government is planning share sale in Oil India Ltd and NMDC by December 20.
The ONGC offer for sale (OFS) had to be bailed out by Life Insurance Corporation (LIC) as other institutional players stayed away due to higher floor price. Then, the government had set the ONGC auction floor price at three per cent premium to its market price at Rs 290. Also, ONGC issue size was around Rs 12,000 crore while the government will raise Rs 574 crore by selling Hindustan Copper stake at floor price. LIC had put in around Rs 12,000 crore to buy 400 million ONGC shares and he market price of ONGC has still not come close to Rs 290.
The share price of Hindustan Copper rose 16 per cent in intra-day trade today as markets were aware that government would announce auction floor price for share sale in company.
"The floor price for Hindustan Copper set by the government is a fair value price. The share price has seen sharp rally in the past few months as the company has very little floating stock -- 0.41 per cent -- in the market and large proportion of that too is controlled by few players," said independent equity advisor SP Tulsian.
Hindustan Copper has issued over 925.2 million shares out of which only 3.7 million shares are traded in the market. The government owns 99.59 per cent stake in the company and rest is divided between seven institutional players, two trusts, 842 corporate bodies, 27,772 retail investors and 300 non-residential indians.
This is not the first time that government has said they would dilute their stake in Hindustan Copper. The share price of the company had seen a massive rise between December 2011 and February 2012 when government had announced that they would sell stake in Hindustan Copper but nothing materialised and share price fell. The share rose from a 52-week low of Rs 146 on December 20 to touch a high of Rs 320 on February 2. Only last week the share was traded at Rs 222 and has been rising in anticipation of government announcement.
Tulsian said, the few players who control the free float of Hindustan Copper are playing the counter and keeping the company share price high. "The fair value for Hindustan Copper is around Rs 150 and that too is mainly because the company has a copper mine."
The Hindustan Copper counter saw a spurt in traded volume on BSE and NSE a couple of days ago and volumes were double of the fortnightly average volumes in the counter.
The copper prices are down over 6 per cent since October. At the current market price of Rs 266 a share, Hindustan Copper trades at 76 times its 2011-12 earnings per share (EPS), say analysts. At Rs 155, Hindustan Copper trades at at 47 times its trailing four-quarter EPS, which may still be expensive to global standards.
Hindustan Copper’s first half results saw company's net profit fall by 13 per cent even while its revenue rose by 10.8 per cent to Rs.596.4 crore.