SAIL Trimming Just the First Step in India’s Gov’t Divestments

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According to a report in The Business Standard, a year and a half ago, India’s government had to work hard to sell a 5% stake in Steel Authority of India Ltd. (SAIL), its primarily state-owned steel company. A few hours before the issue was scheduled to close, the Life Insurance Company of India (LIC) had bailed it out by buying a major chunk of unsold shares.

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Last week, though, the market was bullish, and even retail investors bid for more than twice the number of shares on a new offer of 5% of SAIL. Yet, a the report said, “in spite of strong demand, LIC was the biggest participant once again, mopping up nearly 40% of the shares on offer.”

The Business Standard went on to add that the stock was picked up in spite of being valued at what some would say a hefty premium, riding on the back of a subdued steel outlook.

Other analysts, though, explained that since the stock issue was subscribed twice over, this subscription could not technically be called a “bailout” by institutional financiers.

Another report said that the SAIL Offering For Sale had received “thin participation” from foreign institutional investors because of weakness in the global commodity cycle, and the absence of demand for steel.

A few days before the OFS, SAIL’s new furnace with a useful volume of 4,160 cubic meters, India’s largest operating blast furnace, was inaugurated.

SAIL said the environment-friendly furnace would ensure minimum emission and waste recovery. It was equipped with advanced features like high-top pressure operation, top pressure recovery turbines and stove waste heat recovery among others.

Part of the molten metal would be fed to the furnace for conversion to steel at 150 tons per hour, while the other half would proceed for pig casting at the rate of 1,400 tons per day.

The first step in Prime Minister Narendra Modi’s plan to raise $9.5 billion from state-owned enterprise divestments in the present fiscal year ending in March, has been taken with the sale of more of SAIL’s governmentt-held equity. Almost all analysts agree that the target was unachievable even if the government managed to rush through the stake off-load of its other companies.

The divestment program is vital if the government to meet its budget deficit target of 4.1% of gross domestic product this fiscal year. Just a look at the Indian government’s track record explains the pessimism of the market analysts. Prior to the SAIL offering, the government had raised only about $8.4 million, by selling some of its shares only to employees of two state companies.

Similar divestments that are to follow include a 10% stake in Coal India Ltd. and a 5% stake in Oil and Natural Gas Corp Ltd.

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

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