Move to sell 20% stake in RITES through IPO

The railway ministry has decided to sell a 20 per cent stake in RITES Ltd, an undertaking of the ministry which, among other activities, operates railway networks in some African countries, in an initial public offer.

There will be a sale of fresh equity through the book-building route, which will culminate in the company being listed on the bourses.

Before the IPO, RITES will go in for a bonus issue of shares of face value of Rs 36 crore, which will enhance its paid-up capital to Rs 40 crore. The issue would be preceded by a share split, with a Rs 100 share being split into 10 shares of Rs 10 each. Nearly 10 per cent of the total shares offered for listing will be reserved for RITES employees. The proposal has been framed on the basis of inputs by the Department of Disinvestment.

The proposal is being put before the Cabinet Committee of Economic Affairs for its approval. The railway ministry feels that the IPO and the subsequent listing will be completed within eight months of the Cabinet's approval.

The RITES plan is based on the government's policy direction under which it has given in-principle approval for listing of closely held profitable PSUs with net worth in excess of Rs 200 crore through an IPO, in conjunction with fresh equity issue by the company concerned or through "offer of sale" of government equity.

RITES had a net worth of Rs 396 crore on March 31, 2006 and has been a profit making entity for 32 years. The company started business with an equity capital of Rs 10 lakh in 1974 and its equity capital now stands at Rs 4 crore, enhanced by periodical issuance of bonus shares of Rs 3.9 crore. Its reserves are estimated at Rs 396 crore.

Sources say RITES wants to explore business opportunities through the build, operate and transfer (BOT) route and needs to raise about Rs 120 crore for forthcoming projects.

The Disinvestment Commission had recommended in 2001 that the government sell off 40 per cent of its equity base in RITES by offering shares to its employees.