Centre launches FY21 disinvestment drive with HAL, OFS oversubscribed

The government has kicked off the 2020-21 disinvestment programme with defence manufacturer Hindustan Aeronautics (HAL). The Rs 5,000-crore offer for sale (OFS) on Thursday saw oversubscription in the institutional investor segment with bids for 42.6 million shares as against 40.13 million on offer.  About Rs 4,257 crore worth of bids have been received so far and the centre will be hoping that retail investors -- those investing up to Rs 200,000 -- will place bids worth at least Rs 750 crore. About 10 million shares reserved for retail investors will be auctioned on Friday.

The base price for the OFS has been set at Rs 1,001 per share, a discount of 15 per cent over Wednesday’s close of Rs 1,178.  The stock, however, fell 14. 2 per cent on Thursday to end at Rs 1,011 per share as traders mounted arbitrage bets.

Experts said many investors could have sold the stock in the secondary market—either from their own holdings or by borrowing through the stock lending mechanism—and applied in the OFS to pocket arbitrage gains.

After the latest fall, the secondary market price has almost converged with the floor price of the OFS. Retail investors can still look to pocket some gains as the government is offering an additional discount of 5 per cent to them.

 

The names of investors who applied in the OFS couldn’t be ascertained immediately. Market players said Life Insurance Corporation LIC) is likely to place bids.

Experts said the government has timed the HAL share sale well. The stock has more than doubled from its March lows amid strong buying momentum in defence stocks. The Street is optimistic that defence companies like HAL will see an improvement in their order book going ahead.

“Currently the company has an order backlog of Rs. 52,000 crore, which is expected to go substantially over the next few years, as the company is likely to get many new orders in the coming years, including orders for 83 LCA which will go for cabinet approval very soon.  The company also has various other projects in the pipeline including light utility helicopter (LUH). These projects will ensure constant order flow for the company and we are positive on the future outlook of the company. However, given likely revenue shortfall for the government there is a possibility of more supply coming into the markets which will increase supply,” said Jyoti Roy, an equity strategist at Angel Broking.

Currently, the government owns 89.97 per cent in HAL. If the retail portion garners adequate subscription, the stake will come down by 15 percentage points to below 75 per cent, making HAL compliant with the minimum public shareholding norms.

HAL is the first major disinvestment carried out by the government for the ongoing fiscal for which it has set an ambitious target of Rs 2.1 trillion. Indian Railway Catering and Tourism Corporation (IRCTC) is likely to be the next candidate for disinvestment. The Centre is in the process of hiring investment banks to pare holdings in the company. Whether the Centre is able to achieve this financial year’s disinvestment target entirely hinges on the initial public offering (IPO) of LIC. The centre is said to have hired two advisors for the LIC IPO, which is expected to fetch Rs 1 trillion to the government.