Coal news and updates

Centre may halve Coal India offer for sale

A beaten-down stock coupled with perceived low appetite among foreign investors could force the government to trim the Coal India (CIL) offer for sale to 5% from 10% planned earlier and push the big-ticket disinvestment to the January-March quarter, official sources told FE.

With intra-government consultations stretched longer than usual on whether to downsize the offer, the department of disinvestment (DoD) in the meantime has extended the deadline three times for bankers to submit their application for managing the CIL issue. The deadline was last extended till November 10 as global merchant bankers have sat tight, under pressure from green activist groups as the world’s largest coal miner allegedly could not allegedly meet its committed environmental sustainability targets.

At the current price of of Rs 337.05 a share, CIL, one of the highest dividend-paying companies, could fetch the exchequer Rs 21,200 crore with a 10% stake sale or Rs 10,600 crore on a 5% disinvestment. Caught in a volatile market, the CIL stock is down nearly 25% from a 52-week-high price of Rs 447 seen on August 5. In January 2015, the government had sold 10% in CIL to raise the highest ever amount of Rs 22,557 crore from any single PSU stake sale at a price of Rs 358 a share while its IPO in October 2010, when the UPA government was in power, was the largest PSU IPO ever, raising Rs 15,199 crore for government’s 10% stake at a price of Rs 245 per share. While the OFS was oversubscribed by only 5%, the IPO was oversubscribed by about 14 times, indicating the robustness of the stock then.

Officials sources said though the DoD will take some more time to take a final call on the size of the CIL offer, the mood now is in favour of a 5% divestment. The OFS of the monolithic coal miner is crucial given the ambitious disinvestment target of Rs 69,500 crore for FY16, which, the government has tacitly admitted, is an impossible task, even as efforts are on to maximise the proceeds from stake sales in companies.

On the ecological issue of promoting investments in a fossil fuel producer, sources said the CIL management held discussions with global merchant bankers in the first week of October. They added that six to seven merchant bankers including foreign ones had expressed interest before the date was extended earlier this month. The CIL OFS in January was managed by seven bankers including Goldman Sachs, DSP Merrill Lynch, Credit Suisse and Deutche Equities.

Since the last stake sale in CIL was in January, a view has emerged among officials that the market may not have an appetite for such a large issue in such a short interval and, therefore, the issue should be spaced out to early 2016. Sources said CIL is in favour of getting the entire 10% stake sale done in one tranche, so that it won’t have to hit the market again next year.

Despite the DoD reaching out to long-term foreign investors, they may not have much appetite for energy sector stocks like CIL due to a slump in global commodity prices (although the CIL’s coal price is somewhat insulated from global prices and is holding relatively firm). Also weighing on the department’s mind is the dismal experience with the latest 10% disinvestment in Indian Oil Corporation, a stake sale that had to be bailed out by state-run Life Insurance Corporation, as foreign investors largely stayed away due to excess volatility in the equities market.

The state-run coal miner recorded a 9% production growth for April-September this year but fell short of the target by 3%. In the first quarter of the current fiscal, the company had achieved 99% of the target with a production growth of 12%. In the last fiscal, the PSU’s production had grown by more than 7% to 494 million tonnes (mt), the highest growth in four decades.

Against the disinvestment target of Rs 69,500 crore, the government has so far raised only Rs 12,700 crore by selling states in four PSUs. Other PSUs in the disinvestment pipeline include NTPC, ONGC, Nalco and BHEL.

source: http://www.financialexpress.com