India’s Great Sell-Off Begins With Part of SAIL

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India’s new government is set to relaunch a stalled program to disinvest its shares in some of its public sector companies, with an eye on lowering the country’s fiscal deficit and bringing its economy back to an even keel.

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Domestic roadshows for a 5 percent disinvestment in the Steel Authority of India Ltd (SAIL) will be launched by the end of the month. The sale is likely to fetch the government about US $300 million (Rs 1,800 crore), bringing its stake in SAIL down to 75 percent. A similar, two-week sales pitch for overseas investors in the US, UK and other countries is scheduled for the first week of September.

India plans to auction off about $10.5 billion worth of state-owned company stock this fiscal year, beginning with SAIL, though doubts are being expressed in some quarters whether it would be able to meet its target in the remaining 8 months.

India’s public sector undertaking (PSU) disinvestment has, in the past, attracted retail investors in the stock market. An example is Coal India which brought in millions of dollars. The BJP government needs to lower the current fiscal deficit from 4.1 to around 3.8 percent, and at speeds faster than its predecessor for economic and political reasons. The previous government had set a target of US $8.5 billion but had fallen short in meeting its disinvestment target for 2013-2014, since the economy was down and it was an election year. In fact, all the disinvestment targets of the last three fiscal years never materialized.

To start off the program with SAIL seems to be the right step since India’s largest public sector steel giant has now charted a new course for itself including the marketing of additional volumes of steel when it will roll out of its newly integrated steel plants later this year, as reported by MetalMiner.

In the recent past SAIL switched strategies and went in on a plan to develop new steel products to gain an edge over rivals, including value-added steel products used for manufacturing automobiles, consumer durables, defense and railway equipment.

The steel giant recently claimed it was close to completing an approximately $2.2 billion expansion plan at its Rourkela Steel Plant in India’s eastern state of Odisha, which is expected to push capacity to 4.5 million tons per year from the existing 2 MT.

The PSU also said it was pursuing plans for this plant’s further expansion to 10.8 MT per year as part of its blueprint to attain an overall capacity of 50 MT per year by 2025.

Soon after SAIL, the government is looking to sell a 10 percent stake each in Rashtriya Ispat Nigam Ltd and Hindustan Aeronautics Ltd in the present fiscal year, besides an outright sale of the Tyre Corporation of India. It will also dump the residual government equity in Hindustan Zinc and Balco.

Sohrab Darabshaw contributes an Indian perspective on industrial metals markets to MetalMiner.

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