It’s all about coal for the investors’ soul!

By Sonali Banerjee

We all know and agree that black is sexy. But just how much, was proven beyond point at the Coal India IPO, which at a staggering $3.5billion or roughly Rs.15000 crore, is the biggest IPO in the history of corporate India. ‘Black Gold’ seems to rule the roost, as is very much evident from the big numbers.
To start with, the disinvestment plan had to face many hiccups with TMC Chief and Railway Minister Mamata Banerjee objecting to the move. Her concern was that the divestment plan would upset workers at CIL (Coal India Ltd.) which had its headquarters and a major preserve at Kolkata. This might adversely affect her and her party’s chances at the coming elections. But the plan was ultimately given the green signal by Prime Minister Dr. Manmohan Singh. The government actually plans to sell stake in 15 other state run companies as well. Apart from the problem posed by TMC, there was also a nagging fear as to whether the IPO would be well received by the investors, especially the retail investors, or not. Also the not so successful divestment of another PSU, Satluj Jal Nigam Ltd. (SJVL), earlier that year did not present a good precedent.
The divestment of 10% stake in this Navratna company, which is the world’s largest coal producer, was expected to generate about Rs. 15000 crore for the government with around 632 million shares up for sale. But the term bullish was given another meaning altogether during the whole auction process which ultimately generated Rs. 2.36 lakh crore, over 15 times the original targeted amount. All skepticism regarding the offer being accepted was put to rest as both foreign and retail investors showed a great deal of optimism in this issue. The offer saw average retail size increase to Rs. 70000-75000 from the generally witnessed Rs.40000-45000. Around the time of the issue foreign institutional investors (FII’s) had also been showing a lot of interest and confidence in the Indian markets unlike the time when the decision for divestment was taken. For the Coal India IPO alone, they have put in bids worth Rs 1.20 lakh crore.

The price band for the IPO, which was opened for subscription on 18th October and closed on 21st October, was set at Rs.225-245 a share with 5% discount for employees and retail investors. This incentive sure proved successful in case of retail investors but failed to do so in case of employees who preferred to maintain a safe, but not so profitable distance, from the IPO. 1% of the total IPO was reserved for the employees but it remained mostly unsubscribed. This attitude can mostly find its roots in the trade unions who vehemently opposed the idea of disinvestment fearing the possibility of job cuts. But looking at the success of the IPO, it would now be interesting to capture the employees’ reaction. The shares finally got listed on 4th November at a debut price of Rs.308 against the offer price of Rs.245 per share. Shares trading at a 28% gain over the offer price on the very first day leave almost nothing for the critics to say. But one can never be too cautious, especially in the stock market, which has seen some duds in the much hyped Reliance Power IPO earlier. Although the debacle of Reliance can mostly be blamed on weak stock market and resulting low confidence of the investors, but it does not take much time for the bulls and bears to change their moods and directions. With heavy FII investment in CIL, a major risk is that even a slight turbulence might cause the FII’s to withdraw, and it is a trend that has been only been proven consistent over time, that FII’s tend to withdraw as quickly and heavily as they tend to enter. This might lead to severe ramifications for CIL’s market prices and for CIL itself.
But giving the skeptic a break and focusing on the almost blinding success of the IPO, it can be found that the basic reason for this underdog IPO to become such a historical success is investor confidence. After the recession, investor confidence had hit new and gravity defying lows, which was evident from the slow rise of the stock market indices. But a booming economy and strong FII inflows somewhat influenced the retail investors as well, in a very positive and a profitable manner. Of course the credentials of CIL cannot be brushed backstage. Excellent record is what set the platform for such confidence. And the historical success of this IPO has set some pretty high standards for other PSU’s as well, who are waiting in the wings for listing.
Although each of these PSU companies are different and are an entity of their own and successful in their own right, comparisons are bound to be made. Power Grid Corporation has come up with its FPO (Follow on Public Offer) and has already been over-subscribed, what remains to be seen whether it can match the dizzying standards set by Coal India Ltd. That sure would be an interesting thing to look forward to. Incredible India Inc. anyone.. ?!!