Govt could likely sell 5% stake in Coal India in FY16, too

Just months after a Rs 22,600-crore disinvestment in the company, Coal India Ltd (CIL) is back in the reckoning for another stake sale, with the government considering selling five per cent in the public sector giant this financial year, it is learnt. The move will reduce the Centre’s stake in the company to 75 per cent, as mandated by the Securities and Exchange Board of India.

At current market prices, selling five per cent stake could fetch the government Rs 12,000-13,000 crore. This could go a long way in helping the Centre meet its disinvestment target of Rs 41,000 for FY16.

Senior government officials say if there is a major gap between the disinvestment target for this year and the realised proceeds by the end of October, the finance ministry’s disinvestment department might seek a Cabinet approval for divestment in CIL so that the stake can be sold by the end of FY16. “Coal India cannot be ruled out (for stake sale) this financial year, too. A final call will be taken by October. If the need arises, there will be a five per cent divestment,” an official told Business Standard.

One reason CIL is being considered is because disinvestment in another major candidate, Oil and Natural Gas Corporation (ONGC), might run into hurdles. This is due to a long-pending, proposed subsidy-sharing mechanism between the government and upstream oil companies, as well as low global oil prices.

Though the Cabinet has already approved the ONGC disinvestment and roadshows for this have been conducted, no sale can be carried out till the subsidy-sharing mechanism is approved by the Cabinet. “Even if the mechanism is resolved soon, there might be a prolonged overhang of the issue on the ONGC stock. That, coupled with low oil prices, is unlikely to be conducive to a successful offering. We will keep a close eye on the scrip,” said a second official.

At current prices, sale of five per cent stake in ONGC might fetch about Rs 9,000 crore.

In January, the Centre had sold a 10 per cent stake in CIL, as a part of its disinvestment plan for 2014-15. At Rs 22,600 crore, it was the single-largest stake sale ever carried out by the government. The issue, however, was undersubscribed by retail investors. Reportedly, state-owned insurance companies picked up the slack.

There is no precedent of stake in a single company being divested in consecutive financial years, primarily due to fear of loss in investor appetite. Officials say the ambitious target for 2015-16 has compelled them to do things differently this time. “There isn’t a precedent of disinvestment from the first month of a financial year either. Yet, the government started early, with Rural Electrification Corporation (REC),” said the second official.

Earlier this month, the government had raised Rs 1,600 crore by selling stake in REC. A five per cent stake in Power Finance Corporation is likely to be divested before the end of this month.

For 2015-16, the Centre has revamped its disinvestment plans. In contrast to the practice of seeking Cabinet and regulatory approvals in the first half of the year and selling stake in the second, the disinvestment department has already received or will receive most Cabinet approvals by the end of April.

In a post-Budget interview, disinvestment secretary Aradhana Johri had told Business Standard the stake-sale pipeline being prepared was for stake totalling Rs 30,000 crore. While she didn’t reveal any name, sources say other companies in which the Centre might sell 5-15 per cent stake each this year include ONGC, NDMC, Indian Oil, National Aluminium Company, Dregding Corp of India, Bharat Heavy Electricals, Hindustan Copper, Rashtriya Chemicals, Engineers India, NTPC, and State Trading Corp.