SAIL OFS manages to sail through

Govt meets divestment target, manages to raise little over Rs 1,500 crore

The share sale of the country’s largest steel manufacturer, government-owned Steel Authority of India Ltd (SAIL), has managed to scrape through. The government raised a little over Rs 1,500 crore and achieved the year’s truncated disinvestment target of Rs 24,000 crore.

The offer for sale (OFS) of 240 million shares or 5.8 per cent stake of SAIL saw demand for just 241 million shares, at a weighted average price of Rs 63.07 a share, stock exchange data showed. The government had fixed the minimum sale price at Rs 63 a share. SAIL shares closed 55p or 0.86 per cent lower today at Rs 63.35, slightly higher than its four-year low of Rs 63.10.

Despite the issue being priced near its 2009-levels, demand from investors remained lukewarm on account of a subdued steel industry outlook and softening in steel prices.

The investment bankers handling the share sale said the majority of the investors were domestic financial institutions; some select long-only foreign investors participated. A banker said Life Insurance Corporation and State Bank of India made big-ticket applications.

Nearly 76 per cent of the bidders came through the ‘zero upfront payment’ route, where trade settlement takes a day more than the 100 per cent margin route and investors are not allowed to cancel or modify bids.

Following today’s share auction, the government’s stake in SAIL will come down from 85.82 per cent to 80 per cent. The government had earlier planned to sell 10 per cent of its holding in SAIL; however, given the depressed valuations, it decided to offload only about half this much. SAIL trades at a price to earnings multiple of just eight times its 2013-14 estimated earnings.

Given the unfavourable outlook, most companies in the sector, including Tata Steel, underperformed the market this year. Steel sector growth was below three per cent during the April 2012-February 2013 period, from as much as eight per cent in 2011-12.

The SAIL OFS was managed by Axis Capital, Deutsche Equities, HSBC Securities (India), JP Morgan, Kotak Securities and SBICAP.

This year proved to be the best ever for disinvestment in terms of the total amount raised, surpassing the previous record of Rs 23,553 crore raised in 2009-10.

Including SAIL, the government sold shares in six companies this financial year to contain the fiscal deficit to 5.2 per cent of gross domestic product. Power producer NTPC’s share auction, which raised nearly Rs 11,500 crore, was the biggest grosser among these.