The government's ambitious disinvestment drive in the ongoing financial year got a boost on Friday, as an offer to sell 5 per cent in a steelmaker to raise US $275 million saw investors bidding for twice the number of shares on sale.
The strong response from investors to the sale of shares in Steel Authority of India (SAIL) could improve prospects for other divestments, including a stock offering in Coal India Ltd, the world's largest coal miner.
However, Prime Minister Narendra Modi seems likely to miss a target to raise US $9.5 billion from the sell-off of government stakes in companies in the 2014-15 fiscal ending March 31, 2015, as resistance from staff unions and investor worries about some company-specific issues delay the process.
The fund-raising from the divestment programme is crucial for the central government to meet its budget deficit target of 4.1 per cent of gross domestic product (GDP) for FY15.
Prior to the SAIL offering, the government had raised about US $8.4 million, less than a thousandth of its target, by selling some of its shares to employees of two state companies, and not to institutional and retail investors.
"It is a good sign, and the government will be confident of mobilising substantial funds for the pending divestments," said RK Gupta, managing director of Taurus Asset Management, referring to investors' response to the SAIL share sale.
The offering from SAIL, the country's second-largest steelmaker, got bids for more than 418 million shares at the close, more than double the 206.5 million shares on offer, according to data provided by the stock exchanges.
Retail investors, who got a 5 per cent discount to the bid price, subscribed for more than 2.5 times the number of shares on offer, with institutions bidding for nearly 2 times the allotted shares.
"People have accepted this disinvestment in a positive manner... That itself is a good achievement on the part of the government," Gupta said.
With the stake sale of 5 per cent in SAIL, the government's shareholding in the steelmaker has come down to 75 per cent.
Other divestments in the pipeline include a 10 per cent stake in Coal India (CIL) and a 5 per cent stake in Oil and Natural Gas Corp (ONGC). At their current market prices, these two state-run firms could help the government raise two-thirds of its divestment target.