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Govt sells 2.21% stake for Rs 32 bn to ETF; complies to Sebi norms

Avishek Rakshit/Kolkata 07 Dec 18 | 05:31 PM

Illustration: Ajay Mohanty | Representative image

After two rounds of stake sale in Coal India which generated a lukewarm response from the investors as well as company employees, the government has offloaded a further 2.21 per cent of its stakes to the CPSE ETF Scheme which has fetched it Rs 32 billion.

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The stakes have been sold to Reliance Nippon Life Asset Management Ltd – the asset management company of the Central Public Sector Enterprise Exchange Traded Fund’s (CPSE ETF) mutual fund scheme at a discounted rate.

The total money raised so far from the total three tranches – open market, offering shares to employees and CPSE ETF – is Rs 84 billion.

ALSO READ: Govt sells 2.21% stake in Coal India to CPSE ETF

Sources suggested that with the company’s scrip on the BSE remaining tepid, the money raised by the government is far less than what it had previously anticipated. The government had initially planned to raise an estimated Rs 180 billion by reducing its stakes. The money thus collected would be infused for national infrastructure and other developmental projects.

During October-November, against a total offer to sell a nine per cent stake, including an oversubscription option, the government could sell 3.19 per cent of its stake. It was followed by another tranche of sale, when 0.45 per cent of the stakes were offered to employees. 

Effectively, on one hand, the actual realisations from these two stake-sales not only fell short of its estimates, the government also wasn’t able to comply with the Sebi norms.

The market regulator’s norms stipulate that the government may hold a maximum of 75 per cent in any public sector undertaking and had set an earlier deadline for Coal India which expired on August this year. Meanwhile, Coal India has already asked Sebi for an extension to comply with its norms.

After the first tranche of sale this year, the government’s stake in this company fell to 75.13 per cent from the previous 78.32 per cent – just a little above the stipulated norms. 

“However, post the CPSE ETF, the government’s stake has now reduced to 72.92 per cent which is in compliance to Sebi directives", a senior Coal India executive said.

ALSO READ: Centre mops up Rs 170 billion through fourth tranche of CPSE ETF

Company officials reasoned that despite Coal India posting a year-on-year increase in production and despatches and its average price realisations improving, the company’s scrip had dampened the open offer sale as well as failed to attract its employees to invest in their workplace. The scrip which hovered around Rs 270 apiece on November 12, fell to Rs 263.50 apiece at the end of November 15 this year and hit a 52-week low on December 6 at Rs 240.70 per share. 

“The stock price was definitely a dampener for the response we have received from the employees. It was expected that the stock will hover around Rs 300 apiece which would generate interest in the market as well as among employees to buy the stock at a discount; but it didn’t happen so", the executive said.

Rupesh Sankhe, research analyst with Reliance Securities, said that as against the average market return of 20-25 per cent, the return on investment on Coal India has been 15-20 per cent.

The Coal India scrip recently has been bearish recently despite this Maharatna company posting an 8-fold jump in its net profit at Rs 30.85 billion for the quarter ended September 30 in the ongoing financial year.

According to market analysts, the stock prices could have gone up had large institutional investors picked up substantial stake but it is predicted that this isn’t the case.

ALSO READ: CPSE ETF 4th tranche: Anchor portion subscribed 5.5 times to Rs 133 bn

A sector analyst said that in the considering the share price of Rs 358 per share in the 2015 disinvestment and discounting the hefty dividends which Coal India had paid thereafter, the stock price should have hovered at a minimum of Rs 290 apiece to generate interest from the public buyers or the company employees.

The government undertook three back-to-back tranches of stake sale The government earned an estimated Rs 84 billion by offloading a total of 5.2 per cent stakeGovernment’s stake now stands at 72.92 per cent; complies to Sebi normsTrade unions oppose stake sale but don’t resort to condemning it

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