SAIL share sale: Lukewarm response from private investors

State-owned insurers and public sector banks subscribed to almost half of the public issue of SAIL's share sale that opened on Friday, as large private institutional investors showed lukewarm response.

State-owned insurers and public sector banks subscribed to almost half of the public issue of government-owned Steel Authority of India’s share sale that opened on Friday, as large private institutional investors showed lukewarm response to the government’s first disinvestment programme.

LIC, India’s largest insurer, and General Insurance Corp joined hands with public sector banks led by the State Bank of India, the country’s largest commercial bank, to put in bids that were almost two times the segment allotted to them, said people familiar with the subscription issue.

The subscription from these state-owned institutions came in as most private institutional investors were unclear about the potential of the Indian steel industry which has been grappling with issues related to dumping of cheaper steel from China and with unavailability of iron ore, the main raw material for steel.

“Although SAIL has captive mines, there are limited growth opportunities in the steel sector and the market is not very optimistic about the industry,” said Mahesh Singhi of Singhi Advisors, a global investment banking firm that deals in M&A, divestiture.

On Friday, the finance ministry said the disinvestment of 5% government stake in SAIL had raised approximately Rs 1,715 crore. While the exact quantum of subscription by the state-owned insurers and public sector banks will be known on Dec 8, it has been learnt that LIC and GIC have invested about Rs 700 crore, while the banks led by SBI pumped in about Rs 400 crore.

Global brokerage Macquarie which had put an underperform rating on SAIL said in a report that it sees a 30% downside to its target price of Rs 63. Macquarie said that SAIL’s competitive advantage has been reduced due to a sharp fall in global iron ore prices.

Shares of SAIL ended on Friday down 2.9% at Rs 82.80 on the BSE.

“There was very little buzz around the SAIL public issue,” said Dipan Mehta, member, BSE. “The stock market response will be stronger if the government comes in with a larger disinvestment chunk instead of small portions. If the scope for more sale of shares in government companies is reduced then the market adds premium to such issues. But if such offers for sale come in small doses, there will be limited response,” he added.

According to BSE data institutional investors and banks bid for almost two times the 18.65 crore shares reserved for them, while retail investors put in bids for 2.7 times the 2.06 crore shares in the category. In all the offering from SAIL got bids for more than double the size of the issue.