The government's bid to raise funds by selling stakes in public sector firms to bridge a widening fiscal deficit received a big boost on Wednesday as its offer for a 10% stake sale in the National Mineral Development Corporation (NMDC) was oversubscribed.
Against the offer for sale of 39.65 crore shares of India's largest iron ore miner, 68.69 crore bids were received at an indicative price of Rs. 149.15 per share fetching over Rs. 5,900 crore to the central exchequer.
The disinvestment, which was done through the auction route on the stock exchanges, was the second after last month's Rs. 808-crore issue by Hindustan Copper Ltd and by far the largest since a messy Rs. 12,666-crore auction of shares in Oil and Natural Gas Corp last March that had needed a helping hand from public sector investors like the Life Insurance Corp to get over the line.
The government aims to raise Rs. 30,000 crore from sell-offs this fiscal. Around 10 more PSUs including those of NTPC, SAIL and Oil India are set to hit the market. The success of the two auctions so far augurs well for others in the months ahead.
A successful round would help lighten concerns of a burgeoning fiscal deficit expected to hit around 5.6 to 5.8% of GDP, above the official target of 5.3%.
The government had fixed a price band of Rs. 145-150 per share for the NMDC auction on Monday and had set a floor price of Rs. 147 per share before the start of the auction. Shares in NMDC closed 3.3% lower at Rs. 154.30 on Wednesday, but still at a premium to the indicative offer price.
A fourth of the issue was reserved for mutual funds and insurance companies. No other single bidder was allowed to bid for more than 25% of the offer.
It is estimated that foreign portfolio investors bought more than 30% of the shares on offer.
Last fiscal, only Rs. 14,000 crore could be raised against a target of Rs. 40,000 crore on account of lacklustre market conditions.