With the Union government on Tuesday fixing the price band for Coal India’s initial public offering (IPO) — the biggest float in India’s corporate history — at Rs 25-245 a share, the stock market is set for a reality check. With no listed peer in the domestic market, the issue will set a benchmark of sorts, as well as test the appetite of a booming market.
The issue, opening on October 18, is expected to garner around Rs 15,000 crore, higher than the Rs 11,500 crore raised by Anil Ambani-promoted Reliance Power in January 2008, when the benchmark Sensex touched an historic high of 21,000.
Coal India will offer 630 million shares at a face value of Rs 10 each. The issue will close on October 21. The government will sell 10 per cent of its current 100 per cent stake in the company. “We expect to raise around Rs 15,000 crore from the issue,” Coal Minister Sri Prakash Jaiswal said after a meeting of the empowered group of ministers (EGoM) set up to finalise the issue’s pricing. Retail investors and Coal India employees will get a 5 per cent discount, Jaiswal added.
| TOP 5 IPOs | ||
| Company | Size (Rs cr) | Year |
| Rel Power | 11,700 | 2,008 |
| ONGC | 9,500 | 2,004 |
| DLF | 9,188 | 2,007 |
| Cairn India | 5,788 | 2,006 |
| TCS | 5,420 | 2,004 |
The four-member EGoM is headed by Finance Minister Pranab Mukherjee and includes, besides Jaiswal, Home Minister P Chidambaram and Planning Commission Secretary Sudha Pillai.
Though the market is riding high on a tide of FII investment, how retail investors respond to the IPO will be important. “It will require around 10-15 lakh retail investors, which appears difficult. Besides, the participation of large investors will also be crucial,” said KK Mittal, head of portfolio management services at Globe Capital Market. He said the valuation is 16.5 times the company’s earnings per share.
Priced at the upper end of the price band, the company would be valued at around Rs 1.6 lakh crore ($35 billion), placing it among India’s top firms, although still lower than government-owned Oil & Natural Gas Corporation, which has a market capitalisation of Rs 2.9 lakh crore, and State Bank of India, valued at Rs 2.0 lakh crore.
Coal India Chairman Partha S Bhattacharya said the company would be listed on November 4, a day before Diwali. “The scrip is expected to trade at a premium from the issue price,” he added.
The government decided on the issue price after benchmarking Coal India’s financial parameters with rivals like Peabody Energy of the US and also after feedback from overseas roadshows that concluded last week. “The pricing has been according to expectations. The issue is likely to be oversubscribed on the first day. Coal India is a sound company with good fundamentals,” said Kishor P Ostwal, chairman & managing director of Mumbai-based equity research provider CNI Research.
Coal India is the largest coal producer in India. With annual production exceeding 430 million tonnes, the company meets over 80 per cent of India’s coal needs. Mittal said the company’s earnings prospects would be impacted by issues relating to environmental clearances for its mines. “If the rule related to 26 per cent profit sharing is enforced, then there will be a dilution of profit. We normally make 10 per cent dilution for market forces, but in this case it is more,” said Mittal.
Coal India had filed its red herring prospectus with market regulator Sebi in the last week of September. Morgan Stanley, Citigroup, Kotak Mahindra Capital, Enam Securities, Deutsche Bank and Bank of America-Merrill Lynch are managers to the offer.
The government has embarked on an ambitious power capacity-addition programme to bring down the country’s over 12 per cent annual power deficit. Roughly 75 per cent of India’s installed generation capacity is coal based. The government has set a target of raising over Rs 40,000 crore this fiscal through the sale of public sector unit shares. “I feel that the government will exceed that target this fiscal,” Ostwal said.
Besides Coal India, the other large issues from the government’s portfolio lined up for this year are Oil & Natural Gas Corporation, Indian Oil Corporation and Steel Authority of India. “The department of disinvestment feels the Coal India IPO will be the frontrunner for all subsequent issues,” Bhattacharyya added.
