Stock markets set stage for PSU floats

The government has so far realised about Rs 20,000 crore through share sale in six companies—SJVNL,Coal India,MOIL,Engineers India,Power Grid Corporation and Shipping Corporation. In 2009-10 ,it raised Rs 23,553 crore from disinvestment in NHPC,Oil India,NTPC,REC and NMDC.

Investors who put in their money in the Coal India and MOIL IPOs are enjoying a 30% plus upside in the stock price,even as the Shipping Corporation FPO failed to give any returns,as the stock tumbled below of the FPO price last Thursday. The IPO of Punjab & Sind Bank that closed on Thursday was subscribed 50 times in the qualified institutional buyers (QIB) category and 8.38 times in the retail category. With PSB joining in,all the public sector banks would now be listed on the exchanges.

Encouraged by the response,Prime Minister Manmohan Singh said last Wednesday that PSEs are ready to face market scrutiny,even as he hinted that troubled companies like Air India and BSNL will receive due support of the government. “This indicates the vitality of our PSEs and also shows that it is ready to face market scrutiny,” Singh said at a seminar.

The government raised Rs 15,400 crore in the Coal India share-sale alone,which was subscribed 15.28 times,making it the biggest IPO so far in the Indian equities market.

“Coal India has proven to be the game-changer in accentuating the mood of the primary markets,with investors making strong profits”,said Jagannadham Thunuguntla,research head at SMC Global Securities Ltd. While the ONGC FPO is expected to hit the market in March 2011,share sales in companies like ,Hindustan Copper,SAIL,MMTC,Rashtriya Ispat Nigam and Power Finance Corporation are expected to be taken up in the next fiscal.

ONGC is moving ahead with its plan to launch a follow-on-public offer in the current fiscal. ONGC’s board last Thursday approved a special dividend of Rs 32 per share,a stock split and a bonus issue. The company will split equity shares of Rs 10 face value into two shares of Rs 5 face value.

As a precursor to the FPO,the board also approved a 1:1 bonus share issue,one new share being issued for every existing equity held by shareholders. It will also pay a special dividend out of its cash reserves of around Rs 15,000 crore.

After the share split and bonus issue,the market value of ONGC’s shares will dip to around Rs 335,as against Thursday’s trading price of Rs 1,328 on the BSE. This is expected to be an attractive level for retail investors to subscribe to the FPO. The government has approved a 5% stake sale in ONGC to raise an estimated Rs 13,000 crore.

As for IOC,the government is yet to fix a time line for its FPO,petroleum secretary S Sundareshan said last week. “There is no question of deferring or postponing (of the follow-on public offer of IOC) as no decision on the timing of the FPO had ever been taken,” he said.

IOC had already appointed six merchant bankers for the sale of 10% equity shares in the FPO that will raise an estimated Rs 9,000 crore. “Approvals for IOC divestment are not yet in place. The cabinet has not yet approved the sale. Only after that can timing etc. can be fixed,” Sundareshan said.