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Coal India Ltd's divestment smoothens India's path to fiscal deficit target

Government rakes in around Rs 22,600 crore in the largest ever collection by a company in India

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Aided by buoyant markets, strong financial institutional investor (FII) inflows and attractive price, the state-owned Coal India Ltd (CIL) successfully sold a 10% stake to rake in around Rs 22,600 crore in the government's largest divestment exercise that saw institutional investors oversubscribe by 1.05%.

With the huge collection from the public sector undertaking's (PSU) sale of shares, the government is now all set to meet its fiscal deficit target of 4.1% of GDP. The government is looking to raise Rs 43,425 crore through divesting stake in government-owned firms in the current fiscal.

In the first disinvestment of the current fiscal, the government collected Rs 1,700 crore through the sale of Steel Authority of India (SAIL) stocks, which was largely picked up by State Bank of India (SBI) and Life Insurance Corporation (LIC).

"It was critical for the government to ensure its (CIL's offer-for-sale) success to meet its fiscal deficit target for the current fiscal. Its success can be attributed to many factors. First, it (CIL) is a monopoly and has strong fundamentals. Second, the markets have also been supportive with strong FII inflows and lastly, the price was very attractive for both retail and non-retail investors," said Rahul Dholam, analyst for mines and metals, Angel Broking.

Friday's OFS collection is the biggest by any company in India and surpassed previous record of Rs 15,000 crore by CIL in 2010.

It, however, raised a sliver of concern with retail demand being less than 50% of the 12.63 crore shares offered for this investor segment. According to data put out by BSE, only 5.37 crore shares were bought by retail investors, albeit at average bid price of Rs 360.11 which was higher than floor price of Rs 358. This was the first disinvestment where share of retail investors were doubled to 20%.

Demand in the non-retail category, which include mutual funds, insurance firms, FIIs and banks, was comparatively more robust with bids for 60.83 crore shares against the 50.53 crore shares offered by the government.

Overall, bids for 66.20 crore shares were received against the 63.16 crore shares put on the block.

Dholam raised concerns over the last hour pick-up in the bidding of the PSU stocks. He said one had to watch out how much LIC and other PSUs have bid.

"Just one hour before the closing bell (stock markets), the data showed low percentages. It gained momentum in the last hour of the trading session. We need to see to what extent LIC and other PSUs have bid. Even a 20-25% subscription by LIC would be a matter of concern," he said.

Close to 25% of the shares offered in the divestment were for mutual funds and insurance firms.

Dholam said CIL's success clears the path for offloading of stake in other PSUs including ONGC, Air India, Airports Authority of India (AAI), IOC, NMDC, PFC and others.

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