SAIL share sale: Government raises $279 million

Mumbai: India aided its bid to avoid a credit downgrade by raising $279 million from selling shares in state-run Steel Authority of India Ltd, but needed help from state investors to do so. The share sale on Friday is part of the government's divestment drive to help restrict the fiscal deficit to 5.2 per cent in the year ending March 31, to avoid becoming the first of the BRIC economies to have its credit rating downgraded.

The government has now raised almost the entire $4.4 billion it had sought to raise through the sale of shares in state-owned companies so far this fiscal year. It had initially hoped to raise $5.5 billion but scaled down its target later in the year. The single-day SAIL auction received bids for a total of 241.3 million shares, at a weighted average price of Rs 63.07, stock exchange data showed.

The government was selling 240.4 million shares or 5.82 per cent stake at a minimum offer price of Rs 63 a share, to bring down its holding in the company to 80 per cent. The sale was the last government divestment for the current fiscal year. For 2013-14, it has set a stiffer target of raising $7.4 billion through stake sales, and divestment candidates include top miner Coal India, top state refiner Indian Oil Corp and Engineers India Ltd.

State, foreign bids

State insurance companies bid for nearly a third of the issue, two sources involved with the deal said. Foreign institutional investors bid for about 30 per cent of the shares on offer, one of the sources said. Analysts did not expect the offer to generate strong interest among investors, mainly because of the recent volatility in equity markets and the bearish outlook for steel demand in a slowing Indian economy.

Shares in the company have lost 30 per cent of their market value so far in 2013, compared with a 3.6 per cent decline in the Sensex. Of the 41 analysts covering SAIL, 20 have a 'sell' recommendation on the stock, according to Thomson Reuters Starmine data. SAIL, with annual capacity of about 14 million tonnes, is the largest steel producer in India, but lags Tata Steel's global capacity of about 27 million tonnes. Under an ongoing expansion programme, the company expects to increase capacity to 18 million tonnes next fiscal. On Friday, SAIL shares closed 0.9 per cent lower at Rs 63.35.