Hindustan Copper share sale nets govt Rs 810 crore
Divestment key to reining in fiscal deficit
India raised Rs 810 crore by selling shares of state-run Hindustan Copper Ltd on Friday, kickstarting a stalled divestment programme that is crucial to reining in a ballooning fiscal deficit.
The success of the auction, the first share sale by New Delhi in eight months, is expected to boost prospects for other state asset sales, although the deal was supported by buying from state institutions.
New Delhi aims to raise Rs 30,000 crore by selling shares in state companies in the fiscal year ending in March. Excluding the latest sale, it has managed just Rs 125 crore so far.
Weak market conditions, corruption scandals and wrangling among government officials have delayed several planned offerings.
"The fact that they are pushing this forward is a positive sign," said Sam Mahtani, a London-based fund manager at F&C Asset Management, which owns shares worth $350 million in Indian entities.
"Obviously they do need the funds to tackle the fiscal deficit," he said.
India may end the year with a fiscal deficit of 5.6 per cent of gross domestic product, above an official target of 5.3 per cent, a top government official said on Thursday.
That would make it tougher for New Delhi to avoid a credit rating downgrade.
The auction of India's third-largest copper producer drew bids for 51.6 million shares, stock exchange data showed, representing 5.6 per cent of its share capital.
New Delhi offered 37.01 million shares, or 4 per cent of the company, but had the option to sell a further 51.71 million. The government is likely to exercise the overallotment option and allocate all shares for which it received bids, two sources with direct knowledge of the matter said.
The bids had a weighted average price of Rs 156.56 a share, exchange data showed, slightly above the Rs 155 floor price.
The government owns 99.59 per cent of Hindustan Copper, and the limited free float had inflated the traded price of the shares. The stock fell about 20 per cent, its daily limit, on Friday to Rs 212.95.
Mumbai-based Angel Broking had advised investors to avoid buying shares in the auction due to a high valuation.
At the floor price, the stock's enterprise value is equivalent to 24.5 times the company's earnings before interest, tax, depreciation and amortisation, compared to five to 10 times at peers Coal India and NMDC, it said.
State-run Life Insurance Corporation of India and State Bank of India were among the bigger buyers of shares, the sources said, an indication of muted interest from private sector investors.
The government has lined up stake sales in miner NMDC Ltd and explorer Oil India before December 20, a government official said this week.
Axis Capital, ICICI Securities, Kotak Securities, SBI Capital and UBS were the lead managers for the Hindustan Copper sale.