CIL share prices may dampen stake sale again

Even as Coal India is preparing to attract investors for its stake sale, share prices— which remain tepid at around ~270 apiece—may act as a dampener.

According to Securities and Exchange Board of India (Sebi) regulations, the government can own 75 per cent of equity shares in a public sector enterprise.

Currently, the government holds 78.32 per cent in this Maharatna company and sale of only 3.32 per cent would enable it meet the norm. Last year, the government got an extension from Sebi till August 31 this year to complete the stake sale.

People in the know said the government had initially planned to offload 10 per cent stake, targeting to raise ~200 billion in the process. The money thus collected would be infused for national infrastructure and other developmental projects.

However, the CIL scrip, after hitting a low of ~247 apiece in July last year, had risen to touch ~314.20 apiece in February this year. After this high, the stock fell again and has been hovering at ~265-270 apiece.

A senior CIL executive said the coal ministry might ask Sebi for another extension this as the stock is hovering around ~270 apiece on the BSE and the ministry will not be able to generate funds to the extent that it had previously anticipated, at the current rate.

Considering the current market capitalisation of CIL, a 10 per cent stake sale at current prices may fetch a maximum of ~165 billion. In turn, this would result in the government losing at least 17.5 per cent of its targeted estimates in case it proceeds with the sale.

The executive pointed out that the government may risk losing more than the target as it will have to sell its stake offering prices lower than the prevalent market rate. “Otherwise buyers would wonder why they need to purchase the stock from the government and not buy from the open market,” the executive reasoned.

Asked what is the expectation from the share price, the executive said, “Last time, when the stake sale happened in January 2015, the stock was priced around ~358 apiece.”

In that sale, the coal ministry sold 10 per cent of its shareholding in this blue chip company, which fetched it ~225.57 billion.

Although such a higher valuation may not be possible this time, the government isn’t likely to settle for a lower price. At the time when the projection of ~200 billion was made, the scrip was traded at ~318.20 apiece.

According to another executive, another option for the government is to sell only 3.32 per cent to comply with the Sebi norms despite the muted stock price, and opt for another sale after share prices improve, to raise more funds.