Strong demand for Coal India boosts privatisation drive

Mumbai: India sold a 10 per cent stake in state-run behemoth Coal India Ltd on Friday, in a bumper sale which saw demand from institutional investors marginally exceed supply, giving a welcome boost to the government's faltering divestment drive. The sale, set to raise about $3.7 billion at the auction base price, is India's largest ever, moving the government closer to the still distant $10 billion target which it needs to hit to trim the fiscal deficit to a seven-year low by the end of March. Until now, the government had raised barely $300 million.

Market appetite for the shares, though not as strong as in some previous government stake sales, was also a vote of confidence in India's economic recovery, and in its growing demand for energy as industrial production increases. Coal India, the largest coal miner in the world, is the largest supplier of coal domestically, sheltering it to a degree from tumbling global prices, as it feeds India's power stations.

India is the world's third-largest coal importer even though it sits on the fifth-largest reserves. "It’s the world’s largest coal miner operating in a coal-hungry nation, what’s not to like?" said a fund manager at one existing UK-based institutional shareholder, who said he had bid for more stock on Friday.

"The new government has shown it is absolutely and fully committed to cleaning up the operational mess that these state-run corporations have been in. That makes us comfortable." The government had announced the long-awaited sale of a 5 percent stake in Coal India on Wednesday, along with a 5 percent overallotment option.

In the event, demand for the entire 10 percent exceeded supply by the time the auction closed at 3.30 p.m. "The response is indicative of investor confidence as well as appetite for quality issues from India," said Navneet Munot, chief investment officer of SBI Funds Management.

Investors, retail as well as institutional, bid for 662 million shares of Coal India versus the issue size of 631.6 million shares, Bombay Stock Exchange data showed as of 3.25 p.m. Coal India issue is part of the government's divestment agenda, and a strong investor response will bolster New Delhi's plans to offload shares in other state firms including Oil and Natural Gas Corp and Power Finance Corp Ltd.