SAIL pricing kept under wraps, issue size cut

The 5.82% offloading likely to rake in at least Rs 1,500 cr, taking govt kitty from divesement in FY13 to a record Rs 24,000 cr

Having faced flak for its recent handling of share auctions, the government has decided to tread cautiously with the Steel Authority of India Ltd’s (SAIL) stake sale. While the empowered group of ministers (EGoM) on disinvestment today cleared the SAIL offering and decided to launch an offer for sale (OFS) on Friday, it did not disclose the issue pricing even to the bankers. The government also cut the offer size to almost half as valuations have taken a beating.

According to sources, the government plans to divest only 5.82 per cent stake in SAIL, just enough to meet this year's disinvestment target.

Earlier, the Centre was looking at selling 10 per cent of its holdings in the company, but later it decided to offload the remaining stake in the next financial year at better valuations after the company completes its expansion plans, said a person familiar with the development. In April 2010, SAIL commanded a valuation of a whopping Rs 1.58 lakh crore. Today, its market capitalisation stands at a mere Rs 26,869 crore.

Some analysts and brokers have criticised the government for selling public sector undertaking shares in desperation even at multi-year low valuations in companies such as the National Aluminum Company (Nalco) and RCF.

To avoid a Nalco-like situation, the government has been extra cautious to ensure the issue pricing does not leak prematurely, said people familiar with the development. The Nalco pricing had leaked two days before the issue, following which the stock took a beating and the auction got a lukewarm response.

According to reports, the government wanted to price the SAIL offering at around Rs 70, while the bankers wanted to price it at about Rs 60.

“The SAIL issue has been cleared and will hit the market on March 22. We don’t know anything beyond this. We will have to follow the government’s recommendation on the pricing,” said a banker handling the issue.

Typically, the floor price, decided by the department of disinvestment (DoD) in consultation with the finance minister, is informed to the public, along with the bankers, through the stock exchanges just a day before the issue.

The uncertainty surrounding the offering, proved to be a blessing in disguise to SAIL’s stock price. Its shares today rebounded from its December 2008 lows to close 0.46 per cent higher at Rs 65.70. The benchmark Sensex, meanwhile, ended 0.65 per cent lower at 18,884.19.

“A lot of shorts had got built up in SAIL yesterday. But most traders cut their bearish bets on concerns that the OFS may not happen at lower levels,” said Yogesh Radke, head of quantitative research, Edelweiss Financial Services.

At current valuations, the government will be able to raise about Rs 1,500 crore by divesting 5.82 per cent in the company. After the SAIL auction, the government will have achieved this year’s scaled-down disinvestment target of Rs 24,000 crore.