Source :Partha Sinha, TNN, Oct 22, 2010, 12.37am IST
The Indian capital market turned black into gold this week. The initial public offer of Coal India was set to be the largest in Indian history from the moment it opened on Monday, but even the biggest bulls in the ring were left stunned by the money it mined by the time it closed on Thursday: a mobilization of Rs 2.36 lakh crore, over 15 times the target of Rs 15,500 crore.
It's a mind-boggling testimony to the amount of money floating around in Indian markets, the hunger for good stocks, and the sheer euphoria about the India story ^ also reflected in the fact that the sensex too closed up 388 points at 20,261 on Thursday. The success of Coal India also sets an impressive benchmark for biggies like SAIL, Hindustan Copper, Manganese Ore and Power Grid which are lined up to tap the capital markets in coming months.
It can be a little hard to get one's head around all the zeroes in a figure like Rs 2.36 lakh crore (or $53 billion). So here's some perspective. The amount of money that flowed into the offering by the `black diamond' in just four days is more than last year's GDP of about 140 countries. Nearer home, it is more than the GDP of Sri Lanka ($42 billion) and four times that of Nepal ($12.5 billion), according to data on the World Bank's website. It is also almost 10 times India's health budget of Rs 25,154 crore for 2010-11, nearly five times our education budget of Rs 49,904 crore and almost one-fourth the size of the Union budget itself.
Here's another fascinating comparison: Foreign institutional investors (FIIs) have pumped in a record Rs 1.08 lakh crore into Indian stocks so far this year. For the Coal India IPO alone, they have put in bids worth Rs 1.20 lakh crore. ``This is one of the best PSUs (CIL is the world's largest coal producer and accounts for 80% of India's coal production) and was offered at a very good valuation,'' explained Dharmesh Mehta, MD, institutional equities, Enam Securities. ``The huge oversubscription also reflects the easy liquidity situation abroad,'' he added. With interest rates at extremely low levels in most developed countries, FIIs can easily borrow there and pump in money into attractive stocks in emerging markets, which is exactly what happened in this case.
The offer also witnessed a rise in the average retail application size to Rs 70,000-75,000 from Rs 40,000-45,000 in other recent offerings. "The strong retail participation in the IPO might actually make the case stronger for Sebi to increase the maximum retail application size to the proposed Rs 2 lakh,'' said Sanjay Sharma, MD & head, equity capital markets, Deutsche Bank, one of the merchant bankers to the offering.
A panel of ministers headed by finance minister Pranab Mukherjee is expected to meet on Sunday to decide the issue price of the offering in the coal behemoth. While the issue price was in the band of Rs 225-245, the strong demand should allow the government to price it towards the highest point, a banker close to the issue was quoted as saying by news agencies. The market consensus is that the scrip will list at around Rs 300. If it does so, Coal India's market cap will be about Rs 1.89 lakh crore, which would make it India's fifth largest company by market cap, behind only RIL (Rs 3.53 lakh crore), ONGC (Rs 2.90 lakh cr), SBI (Rs 2.03 lakh cr) and TCS (Rs 1.93 lakh cr) based on closing prices on Thursday.
Demand was strongest from qualified institutional buyers, which includes FIIs, mutual funds and insurance firms, who bid for 24.7 times the shares on offer to them. Initial indications are that retail investors bid 2.4 times the shares allocated to them, with a record of 18 lakh applications, and this figure was expected to rise. Ironically, Coal India employees themselves stayed away from the IPO, with their bids amounting to barely 9% of the shares reserved for them.
Understandably, the government, which is looking to divest 10% of its 100% stake in the company, was ecstatic at the positive response. Pranab Mukherjee said the huge demand for the IPO showed the level of investor confidence in premier Indian companies, both in the public and private sector.
"Don't underestimate a government company. These are like hidden treasures," a delighted Coal India chairman Partho Bhattacharya told TOI. ``The size of the IPO is only befitting. Look at it this way: Coal India is the (world's) largest reserve holder and the largest producer. Nobody understood the company. But today everyone is taking it seriously.''
Comparisons are being drawn between this IPO and the Reliance Power IPO that closed in January 2008 and was subscribed 73 times. However, the rules of bidding were markedly different then. During the Reliance Power IPO, institutions were allowed to bid with just 10% margin money. So, if an FII had $50 million to put into the offer, it could actually put in a bid for shares worth $500 million. But a few months ago, Sebi scrapped this practice. So, an FII can bid $50 million for Coal India only if it wants shares worth that much.
Market players also believe with a series of PSUs now lined-up for divestment, the success of this offer would now make the government more confident about these offers. This would also give investors much higher confidence to invest in PSU stocks in general, and the forthcoming divestments in particular, dealers said
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