After the allotment of shares of Coal India, foreign institutional investors (FIIs) will be sitting on a massive amount of cash, courtesy the huge over-subscription and the mechanism of proportionate allotment. Market participants are wondering if this refund money will be allocated to India in general or flow back into the country of origin.
While a section of the market participants is of the view that a fraction of the money would be allocated to the Indian secondary market, there are others who feel the money would be reserved to subscribe to mega IPOs lined up by the government. While Coal India has been the country’s largest IPO, there are already reports that Indian Oil Corporation will tap the market with an offering of the size of Rs 19,000 crore.
Another theory doing the rounds is that many of the global funds that invest in index stocks across the world have put in huge bids on expectation that the stock will be included in Sensex and Nifty by virtue of its sheer size. There is a likelihood that these funds will buy shares of Coal India from the secondary market, say institutional dealers.
At the upper end of the price band, the market capitalisation of Coal India would be around Rs 1.55 lakh crore, making it the seventh-largest listed entity. This would make it a strong candidate for inclusion in the indices.
The institutional portion of the Coal India IPO has been subscribed nearly 25 times with bids received for 7,019.46 million shares, as against 284.24 million on offer.
| CASH FLOW # 600 Coal India applications out of 770 in institutional segment belong to FIIs # FIIs to be left with Rs 1.13 lakh cr ($26 bn) cash balance post-allotment of shares worth Rs 6,966 cr (50% of net issue) to institutional investors |
Of this, FIIs account for bids for 4,933.87 million shares or a little over 70 per cent of the total institutional demand. In other words, FIIs have put in bids worth nearly Rs 1.21 lakh crore in this issue.
Post allotment of shares worth around Rs 6,966 crore (50 per cent of the net issue) to the institutional investors, FIIs will be left with a whopping cash balance of Rs 1.13 lakh crore or $26 billion. Incidentally, this number is currently the single-most important issue being discussed at the institutional desk across brokerages. Dealers are still not sure if they will get a chunk of the FII money that will be available post the allotment of shares.
"Coal India saw 770 applications in the institutional segment, out of which nearly 600 belong to the FIIs," said an investment banker associated with the issue. "Some of the bidders belong to newer destinations that do not have much exposure to the Indian market. These funds are likely to invest a significant amount of the refund money in the stock markets here," he added.