Coal India issue could boost future gov’t sales: analysts


By Salil Panchal, AFP

MUMBAI — The success of India’s US$3.4 billion sale of shares in state-run Coal India has raised hopes of big returns for the government from a cascade of looming partial privatizations, analysts say. The sale of a 10 percent stake in Coal India was oversubscribed 15 times and shares soared 40 percent on their opening day of trade last week as foreign and domestic investors scrambled to invest in the world’s biggest coal miner.

It was India’s biggest stock sale ever and “will see a positive rub-off on future disinvestments,” Sanjay Sharma, head of equities with Deutsche Bank, told AFP. The Congress-led government is planning stakes sales in at least half a dozen state-owned firms in the coming months as part of a wide-ranging divestment strategy encompassing energy to steel companies. The government aims to make the most of a booming share market which has soared 20 percent this year to hit record highs, boosted by inflows from foreigners escaping dismal returns and anemic growth in the developed world. Next out of the starting gates is state-owned energy transmission company Power Grid Corp of India, which plans to launch an offer Tuesday to raise 80 billion rupees (US$1.8 billion). Other state-run firms including Steel Authority of India, Hindustan Copper and Manganese Ore have also lined up share sales. India hopes to raise a total of 400 billion rupees (US$9 billion) by next March from selling chunks of state-run companies with the proceeds to be used for social and infrastructure projects. The income will also help reduce the budget deficit to 5.5 percent of GDP in the year to March from 6.65 percent the previous year. The success of the Coal India offer was partly due to attractive pricing. Investors cold-shouldered earlier issues by state-run iron-ore miner NMDC and thermal-power generator NTPC which were seen as overpriced. “The government has become sober from experience (in disinvestment),” said Maju Nair, of Mumbai-based brokerage Sharekhan. The Coal India sale drew strong foreign interest and analysts expect a similar response to upcoming government stake offers. “There is definite appetite for (Indian) paper if the pricing is fair,” said Srinivasan Subramanian, investment banking head of Enam Securities. India has attracted a record US$27 billion in foreign investment this year. “India has crossed the stage where just strong economic fundamentals are bringing in investments,” said Pramod Gubbi, a director at global investment bank Execution Noble. “Higher yields are attracting investors,” Gubbi said. India’s privatisation plans could also get a lift from last week’s decision by the U.S. central bank to pump more money into the economy to help kickstart economic recovery, analysts add.