Saturday, February 19, 2011

Finance, Steel Ministries differ over SAIL FPO

The eagerly-awaited Rs 8,000-crore follow-on public offering (FPO) by Steel Authority of India (SAIL) appears to be in limbo. The steel ministry has taken a wait-and-watch stance, the finance ministry is growing jittery about meeting its disinvestment target of Rs 40,000 crore by the end of this financial year.

“The issue will come as market conditions improve. We are ready and we can go for it even this year, if the market is stable. Otherwise, we would not," Steel Secretary P K Mishra said on the sidelines of a steel summit here, organised by Ficci.

But newly-appointed Steel Minister Beni Prasad Verma has said since the financial year is drawing to a close, the FPO might hit the markets only next year. “We will wait. There is very little time left this financial year. We are looking at market conditions," the minister said.

The government, which holds slightly more than 85 per cent stake in SAIL, plans to off-load 5 per cent in the company to raise an estimated Rs 4,000 crore. SAIL will issue fresh equity to raise a similar amount. After this FPO, the government’s holding would come down to 69 per cent.

“We have to make an assessment of market conditions and only then will we take a final decision. One-and-a-half months are still available this fiscal… We might have to wait for the next financial year,” SAIL Chairman C S Verma said, adding that the company is ready with a prospectus, which is yet to be approved by the board.

SAIL’s FPO was supposed to hit the markets in February. The steel giant had appointed six merchant bankers in September. But in January, the process was delayed after the government issued notices to four of the short-listed banks — SBI Caps, Kotak Mahindra, Deutsche Bank and HSBC — for taking up the task of managing SAIL rival Tata Steel’s share sale that mopped up Rs 3,477 crore last month. JP Morgan and Enam Securities are not involved.SAIL is expected to utilise the proceeds from the issue of fresh equity towards funding its capital expenditure. The company has also chalked out an ambitious plan of increasing its installed hot metal production capacity from the existing 13.82 million tonnes per annum to 23.46 mtpa.

Meanwhile, the government is also planning to divest stake in state-run explorer Oil & Natural Gas Corp (ONGC). ONGC has said it will hit capital markets by the middle of March, for which it has appointed merchant bankers. The government had approved the sale of 5 per cent stake in ONGC on December 1 to raise Rs 12,000-12,500 crore.

The Indian Oil Corp divestment has also been delayed and is expected only next financial year, which might also see the sale of shares of by Hindustan Copper, Rashtriya Ispat Nigam, Minerals & Metals Trading Corporation and National Building Construction Corporation.

The department of disinvestment, under the finance ministry, is pressuring SAIL to bring out its FPO before March 31 to meet its disinvestment target. So far, the government has only been able to collect Rs 22,763 crore through Satluj Jal Vidyut Nigam (SJVN), Engineers India, Coal India, Power Grid Corporation of India, MOIL and Shipping Corporation of India.

SAIL shares fell 5.90 per cent on the BSE on Friday, sharper than the overall 1.60 per cent decline in the Sensex. Its closing price stood at Rs 160.15, near its 52-week low of Rs 151.80.

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