CIL launches IPO to positive response

The initial public offering (IPO) of Coal India Ltd, the country's largest coal producing company, opened for subscription today. The company aims to raise more than Rs15,000 crore through the IPO, making it the largest amount IPO in Indian history (previously Reliance Power was the biggest IPO, which raised more than Rs11,000 crore).
 
The state-owned coal producer started selling 631.6 million shares today. The stock of the state-owned company will be sold in the range of Rs225-245 each, with the proceeds helping the government narrow its budget deficit.
 
This IPO is a part of the government's divestment programme and the entire amount will go to the government, which will hold 89.99 per cent stake after dilution.

The issue will be open for subscription till 20 October for qualified institutional buyers and 21 October for other buyers. Employees and retail investors will get 5 per cent discount to the issue price.
 
Experts and brokerage houses say the initial share sale will likely be fully subscribed because the price set by the government is low. A majority of brokers advise investors to subscribe to the issue as they like the company's growth and believe that it would consistently grow in future as well. "There is major demand for coal by power producing companies. Also CIL India provides cost at lowest price and valuation looks attractive," they reason.
 
Prithvi Haldea, managing director of Prime Database is happy with this price band, according to CNBC-TV18. "I think this is a very good valuation but the more important issue is that the institutional investors should find this price attractive."
 
Further he said the 5 per cent discount will be good only in case the institutional response is very high, but he would have been more elated if this discount had been 10 per cent because the objective should be to get more and more retail investors. "Remember Reliance Power got 46 lakh investors for its IPO, Coal India could have got more. It still could happen even with 5- per cent discount, provided the institutional response is very strong," he explained.
 
But Jagannadham Thununguntla of SMC Capitals said, a 5-per cent discount is definitely a good opportunity. "This may not sound as such a big attraction in an FPO, but in an IPO it makes sense."
 
Even Deven Choksey of K R Choksey Securities feels that the band is better than expected and Thununguntla too says price band is quite reasonable and sensible. But S P Tulsian of sptulsian.com feels it is quite expensive.
 
But Tulsian's is an exceptional view. ''The IPO will easily get subscribed and that is because the valuation is fair,'' said Samir Arora, founder of hedge fund Helios Capital Management Pte in Singapore, who plans to buy the shares. ''That's the biggest attraction. It's a large company and it's relatively cheap.''
 
In fact, 15 of 18 investors surveyed by Bloomberg News said they plan to buy shares in the world's largest coal producer.
 
The sale is the third offering in a state company since April as the government seeks to cut its budget deficit and fund infrastructure projects. Steel Authority of India Ltd., Oil & Natural Gas Corp and Indian Oil Corp also plan to sell shares.
 
India's coal imports surged 16 per cent in the year ended 31 March as power plants burned more of the fuel to meet demand in Asia's second-fastest growing major economy. Coal India will seek environmental clearances from the government to mine in densely forested areas in states including Jharkhand and Chhattisgarh estimated to hold half of its future output.
 
Citigroup Inc., Deutsche Bank AG, Bank of America Corp., Enam Securities Pvt., Kotak Mahindra and Morgan Stanley are managing Coal India's offering.
 
The share sale will help the government raise 37.8 per cent of its Rs40,000 crore asset-sale target in the year ending 31 March. The country has has raised 5.2 per cent of its target from selling stakes in two state companies this year.