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Steel Authority of India's offer-for-sale (OFS) is said to have received thin participation from foreign institutional investors (FIIs), citing weakness in the global commodity cycle, absence of demand pick-up for steel in the domestic market and delays in expansion plans.
Overall, the OFS of state-owned SAIL was subscribed more than two times on Friday. Major public sector undertakings appear to have subscribed to more than half the shares on offer, followed by the other non-retail investors' segment, which contributed nearly 20 per cent. The retail segment put in 10 per cent and FIIs 9.57 per cent. Domestic private entities' participation was 5.8 per cent.
“Globally, prices of iron ore, coal and steel are melting because of the economic slowdown in China. A fund house has to keep performing and so the short-term outlook cannot be ignored,” said an analyst with a local brokerage. “Since there is a negative view on the sector at present, we saw very thin participation from FIIs in the OFS.”
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“The company had planned capacity expansion to 23.46 million tonnes (mt) by FY13 and it is still not there,” said an analyst with a foreign brokerage.
“We (SAIL) are at about 20 mt and should touch the 24 mt planned target by September (2015),” said a spokesperson of thee largest alloy maker in the country by capacity, followed by JSW Steel.
“There isn't a rebound in domestic steel demand and this has also kept the FIIs, already bearish on the sector, away,” said another analyst with a local brokerage.
“The offer lacked attractive discounts and in my opinion, this was another main reason for the drop in FII participation,” said Sumit Hizly, analyst with Angel Broking.
The government raised Rs 1,725 crore by selling 206.5 million shares via the OFS, representing five per cent of SAIL’s equity, at an indicative price of Rs 83.5 a share. This was the first divestment offer by the government in this financial year.
Views remained mixed on whether FII participation was lower than usual. “There is never a trend. They always study the cycle (in this case, the commodity cycle) and then take a call,” said the analyst with a local brokerage.
“For a reasonably good public sector undertaking, FII participation is 20-25 per cent. So, I think FII participation dropped way too much from normal,” said a city-based analyst.
Foreign investors took 60 per cent of the 60-million share sale in government-owned Oil India, put on offer in February last year. In the OFS from state-run NTPC, the FIIs snapped almost half the 9.5 per cent stake the government divested. However, Hindustan Copper's issue, through which the government sold four per cent in 2012, did not see interest from FIIs or private domestic institutions.
Most analysts said the offer was timed well and that the the government could churn well despite the bearish commodity cycle. It's better to have timed the OFS now than, say, two months earlier, when the stock price was only Rs 68, said analysts.
Though SAIL's OFS is considered a success, the amount churned (Rs 1,725 crore) through the offer is negligible compared to the government's overall divestment target of Rs 58,425 for the current financial year, note analysts.
