Strong fund demand boosts sale of 5 pct of Coal India

MUMBAI (Reuters) - The government's sale of a 5 percent stake in Coal India Ltd was fully covered by mid-afternoon on Friday helped by strong demand from portfolio investors, data showed.

The sale, in which demand from funds exceeded supply, boosts the outlook for the country's $10 billion divestment programme, as the government prepares to put more shares on the block.

The Coal India offering has a provision to sell an additional stake of 5 percent. If a 10 percent issue size is covered, the government will raise roughly $3.7 billion at the auction base price, making it the biggest equity offering in the local market.

Investors, retail as well as institutional, bid for 361.5 million shares of Coal India by 2:33 p.m. versus the base issue size of 315.8 million shares, Bombay Stock Exchange data showed. Bidding for the shares will end at 3.30 p.m.

Coal India issue is part of the government's divestment agenda, and a strong investor response will bolster New Delhi's plans to offload shares in other state firms including Oil and Natural Gas Corp and Power Finance Corp Ltd .

Prime Minister Narendra Modi is racing to meet a commitment to narrow the budget deficit to a seven-year low of 4.1 percent in the year ending in March. The deficit promise relies heavily on the asset sale programme.

The government has budgeted it will raise $10 billion by selling small stakes in state-run firms in this fiscal year. So far it has managed to raise a little more than $300 million.

India is the world's third-largest coal importer even though it sits on the fifth-largest reserves. Coal India produces more than 80 percent of India's total but often fails to meet output targets.

Coal India, the largest coal producer in the world, largely feeds India's growing demand for energy. It is expected to benefit from the Modi government's drive to increase India's energy and industrial production.

(Reporting by Sumeet Chatterjee and Himank Sharma)