The tremendous success of the Initial Public Offer (IPO) of Coal India Ltd (CIL) has many implications beyond just the big numbers. The state-run coal company’s IPO that intended to raise Rs 15,450 crore by issuing shares, highest for any IPO in India, was oversubscribed more than 15 times and it ended up garnering a record amount of demand for Rs 2,40,000 crore worth of shares. There were many positives that worked for the company. First of all CIL has strong fundamentals and potential for a huge upside. It is a monopoly producer and seller of coal with the ability to dictate price without the interference of the government. Secondly, there is an ever-increasing demand for coal to meet the demand for thermal power plants being planned in the country to meet the huge shortfall in power supply. And most importantly, the pricing of the issue was right because it is expected to offer fairly handsome gain on listing as it has ‘left enough for investors on the table.’
A much bigger implication of the success of CIL issue is that the government now seems to be more confident of unlocking the value of premier public sector companies through disinvestment. There are seven PSU companies like Sail, Power Grid Corp, ONGC, Shipping Corporation, etc, planning to raise funds either through IPO or follow up issue. The success also indicates that the government now is expected to raise close to Rs 58,000 crore in the current financial year from disinvestment against its original estimate of Rs 40,000 crore.
This is quite encouraging especially on the back of the fact that the government has already made a huge fortune during the 3G spectrum and BWA (broadband wireless access) auction earlier this year. During that sale, the government has made about Rs 1,06,000 crore, as against the target of about Rs 35,000 crore. This in turn will help lower the overall fiscal deficit in 2010-11 originally budgeted at 5.5 per cent of the GDP. There is a good chance that the government would be able to achieve the target and may even better it. In a situation when most governments in the world are far exceeding their budget deficit limits thanks to large stimulus packages to beat the recession, India’s success can be considered a big achievement.
