Govt aims to meet Sebi norms in CIL via staff-only stake sale

The government is banking upon selling 0.45 per cent of its stake in Coal India to the state-run company’s employees to comply with certain guidelines of the Securities and Exchange Board of India (Sebi). Earlier, it had offloaded 3.19 per cent of its stake in the firm.

The market regulator’s norms state that the government may hold a maximum of 75 per cent stake in any public sector undertaking. Its deadline for Coal India to meet this norm expired in August. Coal India has asked Sebi for an extension.

By mid-November, Coal India employees will be given the option of purchasing shares at a 5 per cent discount over the final discovered price. As of November 6, its share prices stood at ~265.95, five paise below the floor price.

“This sale is over the disinvestment offer on the bourses made by the government,” a senior Coal India official said.

After the sale of its 3.19 per cent stake, the government’s stake has come down to 75.13 per cent. This is marginally above the stipulated norm. Another 0.5 per cent stake sale to the employees will bring down the government’s holding to 74.63 per cent, thus helping it meet the regulator’s directives.

This stake sale will fetch ~640650 million. In the earlier sale, the government had received around ~54 billion.

In a two-day sale, when shares were offered at a floor price of ~266 a piece, the government exercised the oversubscription option at 0.19 per cent, against the initial plan of 6 per cent.

Earlier, it was projected that the realisation from a 9 per cent sale, including discounts, would fetch the government around ~145 billion. According to sector analysts, the oversubscription or greenshoe option could have been fully utilised by the government if share prices would have moved upwards.

“People may have thought that the Coal India scrip may not perform well and may have preferred to invest in other stocks,” said Rupesh Sankhe, research analyst at Reliance Securities.

Oversubscription is a situation where investors order for more shares than offered by the company. This may affect the price when the equity is actually issued.

Other analysts said Coal India’s financial performance had not been at par with earlier projections. “An increase in coal price had marginally pushed up revenue. Profitability was affected on account of lower e-auction realisations,” Sankhe said.

While in the past three years, Coal India’s e-auction realisations had hovered around ~2,700 per tonne, it has lately fallen to around ~1,800, analysts said. They added it is now recovering to touch ~2,200 a tonne. Although e-auction sales comprise less than 5 per cent of the company’s sales volume, its direct contribution to profit is 20-25 per cent.

Sources said the government had initially planned to offload 10 per cent of its stakeholding by targeting to raise ~200 billion. The money would be infused for national infrastructure and other developmental projects, but tepid share prices had made the government postpone the sale, they added.