With the deadline for state-owned companies to meet the minimum public shareholding norms fast approaching, the stake sale will help the government raise close to Rs 560 crore and cut its stake in the trading firm.
The government will sell 9.33 per cent in MMTC through an offer for sale (OFS), following which the company will become public shareholding-compliant. The deadline for public sector units achieving at least 10 per cent public holding ends on August 9, 2013.
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Brokers said the steep discount in pricing for the share sale is because of the low free-float. The government owns 99.33 per cent stake in MMTC. Bankers said the MMTC OFS was supposed to happen in FY13 but the stake sale was deferred as the government did not agree with the lower valuations.
A broker said the government could have softened its stance on valuations after the company reported a net loss of Rs 70.62 crore for the financial year ending March 31, 2013 from a profit of Rs 70.72 crore in the previous financial year. Analysts said the stock is still not a buy at the price offered in the share sale.
“The government is selling a stock that was available at Rs 796 in August 2012 at Rs 60 today. Even at this price, there is no value to be made in the stock. Retail investors would do better to stay away from it,” said Arun Kejriwal, of Mumbai-based investment firm KRIS Research.
Brokers expect the government to hurry through stakes sale in more of its companies without fussing over valuations.
Last year, the government had deferred RINL’s initial public offer and Nalco’s OFS on pricing and valuation concerns.