Govt sets SAIL, but the FPO is caught in choppy waters

There seems to be no end to the phase of uncertainty for the much-delayed share sale of SAIL. The government’s refusal to commit itself to a timeframe only adds to that sense of anxiety. And the culprit is - you have guessed it right - the current volatility in the stock markets.

This is not the first time that the SAIL follow-on public offer (FPO) has failed to stick to the deadline. Earlier, it had failed to take off owing to various reasons, like rising coking coal prices and problems with merchant bankers, besides adverse market conditions.

All this doesn’t paint a pretty picture from an investor point of view, particularly when India looks increasingly attractive even as the West scrambles to put its own house in order. The bottomline is: The government needs to keep its reforms momentum going. The potential risks far outweigh the benefits. One piece of bad news may be enough to cloud the future of the disinvestment process.

For SAIL, the stakes are high because unlike National Aluminium Co Ltd (Nalco) and Hindustan Copper, for SAIL, the government is keen on a combined exercise - stake sale as well as an FPO.

Currently, all that the government is hopeful of is the FPO may happen in the current fiscal. “It has to be at the appropriate time when the stock market is in good condition. Right now, the stock market is going up and down… We still intend to go through with the (FPO) issue this financial year,” Steel Secretary Mr P K Misra told reporters here on the sidelines of a CII conference.

Shares of the company have plunged by over 43 percent since the beginning of this year, according to data available on the Bombay Stock Exchange. The company’s scrips were quoting at Rs 104.50 apiece on BSE in the afternoon trade, down 3.23 percent.

Through the share sale, the government will divest a 5 percent stake in SAIL, while the company will issue fresh equity in the same proportion under the FPO. The government’s disinvestment target for the previous fiscal also got hit due to the delay in SAIL’s share sale. It could only rise over Rs 22,000 crore against a target of mopping up Rs 40,000 crore through divestment in state-owned firms.

The Centre has begun preparation for disinvestment for National Aluminium Co Ltd (Nalco) and Hindustan Copper Ltd without follow-on offers (FPO). However, for SAIL, the Government has revived the process for a combined exercise - stake-sale and an FPO.