Govt aims to meet Sebi's 75% norm in Coal India via staff-only stake sale

Coal India employees would be given the option to buy the company's shares at a 5% discount over the final discovered price in the latest disinvestment move

After offloading 3.19 per cent of its stake in Coal India against the proposal of a maximum nine per cent sale, the government is now hoping to sell another 0.45 per cent exclusively to the state-owned company’s employees, in order to comply with Sebi guidelines.

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 this rule.

By mid-November, Coal India employees would be given the option to buy company shares at a five per cent discount over the final discovered price in the latest disinvestment move. As on November 6, its share price stood at Rs 265.95, just five paise below the floor price.

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

After the sale of 3.19 per cent, the government’s total stake has come down to 75.13 per cent, which is marginally above Sebi's stipulation. A further 0.5 per cent stake sale to employees will help bring down the government’s final holding to 74.63 per cent and enable it to comply to the regulator’s directives.

It is estimated that this stake sale to employees will fetch another Rs 640-650 million. In the 3.19 per cent sale, the government had received around Rs 54 billion. 

In a two-day sale process (October 31 and November 1), when shares were offered at a floor price of Rs 266 apiece, the government exercised the oversubscription option only at 0.19 per cent against the initial plan of six per cent.

Earlier, it was projected that the total realisation from a nine per cent sale, including discounts, would fetch the government around Rs 145 billion. 

According to sector analysts, the oversubscription or green-shoe option could have been fully utilised by the government had the share prices moved up.

“People may have thought 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.

The green-shoe option is a situation in which investors order for more shares than offered by the company. This may affect the price when the equity is actually issued.

Like Sankhe, other analysts felt that Coal India’s recent financial performance hasn’t been at par with previous projections.

“Coal price increases had marginally pushed up revenue and its profitability was also impacted on account of lower e-auction realisations,” Sankhe said.

Sector analysts said that while Coal India’s e-auction realisation had hovered around Rs 2,700 per tonne during the last three years, it had later fallen to around Rs 1,800, but is now recovering to touch Rs 2,200 a tonne.

Although e-auction sales make up less than five per cent of the company’s sales volume, their direct contribution to profit is around 20-25 per cent.

Earlier, as Coal India shares ruled in below Rs 300, the government had decided to postpone the stake sale and in turn, Coal India had applied to Sebi to extend the deadline to enable the company to meet its norms.

Sources suggested that the government had initially planned to offload 10 per cent of its stakeholding by targeting to raise Rs 200 billion via this effort. The money collected would be infused for national infrastructure and other developmental projects but tepid share prices had earlier made the government to postpone the sale.