SAIL's Rs 1,700-cr disinvestment successful

OFS subscribed over two times, retail quota sees higher demand

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Five per stake sale in Steel Authority of India (SAIL) by the government, the first leg of this financial year’s disinvestment programme, received an encouraging response from investors on Friday. The Rs 1,700-crore offer for sale (OFS) was subscribed more than two times, while the portion reserved for retail investors — those investing up to Rs 2 lakh — was subscribed nearly three times.

Experts said the success of the SAIL offering would boost the confidence of the government, which has set a record Rs 58,425-crore gross disinvestment target for this financial year to help bridge its fiscal deficit.

According to investment banking sources, Life Insurance Corporation of India invested as much as Rs 700 crore, about 40 per cent of the issue. Other prominent investors included State Bank of India (Rs 150-200 crore), United India Insurance (Rs 15 crore) and ICICI Bank (Rs 100 crore). The issue also saw participation from Hong Kong-based fund Segantil Capital Management ($15 million) and New-York based Geosphere Capital Management ($5 million).

According to stock exchange data, SAIL’s 206-million share sale received total bids of about 420 million, twice the shares on offer. The 10 per cent, or 20.6 million shares, quota for small investors recorded 53.3 million bids. This is the government’s first disinvestment programme that has a retail quota.

The indicative price, or the volume weighted average price of all valid bids, stood at Rs 83.9 for retail investors and Rs 83.44 for other investors, more than the floor price of Rs 83 set by the government. Investment bankers handling the SAIL OFS said the final price could be more than Rs 84, as the allotment was being done on a price-priority basis. Under this method, the allotment is to those bidding high.

Vinay Menon, managing director (equity capital markets), JPMorgan India, said the response to the SAIL offering was from across investor segments, adding foreign investors’ interest in the “India story” would help future issuances.

Bankers said a five per cent discount on offer had attracted retail investors to the SAIL offering. “The demand from retail investors was encouraging. Despite the market trading at around all-time high levels, there is good interest in India among FIIs (foreign institutional investors),” said Girish Nadkarni, managing director, Motilal Oswal Investment Banking.

Shares of SAIL closed three per cent lower at Rs 82.8 on BSE. As such, the shares were available below the OFS price in the secondary market. The consensus 12-month price target on the stock is Rs 78, according to analysts tracked by Bloomberg.

To meet its disinvestment target for FY15, the government will have to raise another Rs 57,000 crore by March. Market players said big-ticket share sales in Coal India and Oil and Natural Gas Corporation (ONGC), in which the government would divest 10 per cent and five per cent stake, respectively, held the key.

Coal India’s stake sale is likely to be worth about Rs 20,000 crore, while ONGC’s will be about Rs 15,000 crore. “If the mega Coal India and ONGC issues are priced well, demand won’t be an issue,” said Nadkarni.

The disinvestment programme is expected to resume next month, as December-end is a holiday period for foreign investors.