Jinxed SAIL sale to take divestments to new high

Company's m-cap stands at Rs 26,869 cr at today's close, even at discount, the share sale may fetch Rs 1,500 cr

Come Friday, Steel Authority of India Ltd (SAIL) will complete a journey it started a little over two years earlier. With the government clearing its long-pending decision on part-divestment of stake through an offer for sale (OFS) on the stock exchange, the stage is set for a new chapter for the stock, too, say analysts.

At today’s close, the company’s market capitalisation was Rs 26,869 crore. Even at a discount, the sale is expected to fetch around Rs 1,500 crore, enough to take the government’s divestment haul to a record high. With the sale, the kitty will swell to Rs 24,000 crore for the year, the revised budget estimate for FY12-13 pronounced by the finance minister in his Budget last month. This will be higher than the previous record haul of Rs 23,552 crore in 2009-10, making this year the best in two decades of divesting.

According to divest.nic.in, the government had raised Rs 21,504 crore till the Budget. After this, it raised Rs 310 crore through sale in Rashtriya Chemicals and Fertilizers, and a little over Rs 500 crore from sale of Nalco, taking the total to Rs 22,300 crore.

This year also saw a record number of companies, according to the data on the department’s website. Five divestments raised Rs 23,552 crore in 2009-10, while six offers raised Rs 22,144 the following year. In 2011-12, two companies raised Rs 13,894 crore.

SAIL will be the eighth share sale this year, though it would raise a lot less than what it set out to do two years ago. In 2010, the government had planned to sell the shares in a follow-on public offering (FPO) to raise about Rs 8,000 crore. The issue was slated to hit the market in the first week of February 2011. By September 2010, SAIL had appointed six investment banks — JP Morgan, Deutsche Bank, SBI Capital, Kotak Bank, HSBC and Enam Securities — to manage the FPO.

But SAIL’s private rival, Tata Steel, had other ideas. With the help of seven investment banks, four of which were also part of the SAIL mandate, the Jamshedpur-based major stole the government’s thunder by launching its own Rs 7,000-crore FPO. Moving swiftly, Tata Steel appointed bankers in November 2010 and was home with the booty by mid-January 2011.

The SAIL offer and the stock never recovered from this jolt. From the Rs 180-levels it was trading in January 2011, the stock had slipped to Rs 65 at today’s close. The knowledge that a big supply of shares from the government was on the anvil did not help the stock, hit anyway by cyclical downturn in the sector. The department of disinvestment (DoD) went into introspection, tightening conflict of interest provisions. It wanted investment banks to declare they were not running mandates for competitors. The FPO route itself would soon become obsolete, as the markets requlator brought in OFS through stock exchanges, helping DoD become an efficient selling machine.

Even after this, the SAIL issue stumbled a few times, as the steel ministry reportedly had reservations about selling it "cheap", before finally setting itself the Friday date.
SAILING IN ROUGH SEAS

• Share sale originally scheduled for 2010-11
• I-bankers appointed in September 2010
• Had plans to raise Rs  16,000 crore in two tranches
• Half of this (Rs 8,000 crore) for government; rest for the company
• Pipped at the post by Tata Steel FPO in January 2011
• Finally cleared after failing several times