Govt agrees with unions to cut Coal India stake sale

NEW DELHI (Reuters) - The government has halved the size of the stake it plans to sell in Coal India to 5 percent after reaching a deal with the main trade unions.

The government was set to invite bids from bankers and advisers in May for a planned stake sale of 10 percent, but put the process on hold after the trade unions threatened to go on an indefinite strike if the sale went ahead.

That would have come as a blow to the energy hungry nation, which relies on coal to fuel almost 60 percent of its power generation. Coal India produces almost 80 percent of India's coal.

The trade unions, which represent the company's nearly 375,000 workers, had claimed they had been promised the government would not dilute its holding below the current 90 percent stake.

India sold a 10 percent stake in the world's largest coal miner in 2010, raising $3.4 billion in an initial public offer.

It planned to raise 200 billion rupees through a share auction of a further 10 percent stake in the current fiscal year to achieve its target of raising 400 billion rupees through stake sales to narrow its fiscal deficit.

"On the advice of trade unions, the government has decided that instead of 10 percent, we will disinvest 5 percent," Coal minister Sriprakash Jaiswal said on Tuesday.

"For the remaining 5 percent, the government will come out with a different mechanism. Major trade unions are ready for this," Jaiswal told reporters.

On Tuesday, shares in Coal India, valued by the market at $29 billion, closed 0.5 percent higher in a Mumbai market <.BSESN> that fell 1.25 percent.

(Reporting by Malini Menon; Writing by Prashant Mehra; Editing by Louise Heavens)