Government pulls MMTC offer

The stock of MMTC climbed as much as 11.79% from the day’s low after  the government deferred further stake sale in the trading company to the next fiscal citing poor valuations given by investment bankers.

The issue was expected to hit the market on March 14.

Disinvestment secretary Ravi Mathur, who announced the decision of the empowered group of ministers (EGoM) to defer the issue, did not give a new timeline.

Analysts, though, remain wary of the prospects of the company’s offer for sale (OFS).

“How do you justify a market capitalisation of Rs31,770 crore when the company clocked a loss of Rs111 crore in September quarter and a profit of Rs3 crore in December quarter?” asked an analyst with a foreign brokerage.

Indeed, given the lacklustre response to the follow-on public offer of Rashtriya Chemicals and Fertilisers (RCF), which had to be bailed out by LIC, it is difficult to expect a good response to MMTC. To recall, LIC had picked up over 2 crore out of the 6.8 crore RCF shares on offer. Other government institutions also bought major chunks.

“Just like RCF, where there is a regulatory overhang on the company’s business, MMTC’s operations as a trading company are hardly known. Hence, there is nothing to look forward to,” said another analyst with a domestic brokerage.

But the case of the National Aluminium Company (Nalco) – in which, the government deferred an OFS to Friday from Wednesday earlier – is different, say analysts.

“Nalco, backed by a sound business model, can sail through pretty well if it is offered at a discount of 5-7% to Tuesday’s closing price (Rs45.25) – something that was not done in case of RCF, which was offered at 2.5% premium,” said an analyst.

Experts feel a floor price between Rs40 and Rs43 for Nalco will find takers.

On that, the EGoM will take a call at its meeting today.

@promit07