The new Indian government will launch its eagerly awaited $10bn divestment plan for state companies with the sale next month of 5 per cent of Steel Authority of India (Sail), the country’s biggest steel group by volume.
Sail chairman CS Verma said investor roadshows were due to start next month in London, New York, Hong Kong and Singapore, with the aim of raising an estimated Rs18bn-Rs20bn ($300m-$330m).
The Narendra Modi government elected in May plans to plug the country’s budget deficit with the help of such sales, and had intended to begin last month.
Divestment of 5 per cent stakes in Oil and Natural Gas Corporation (ONGC) and in Coal India would between them raise the much larger sum of around $5bn, but the modest Sail divestment is less complicated and regarded by officials as a good way to attract international investors in the first round.
“This will be the first of a series in the new government,” Mr Verma said in an interview. “The first divestment should be a successful divestment.”
The share sale would lower the government’s holding from 80 per cent to 75 per cent of the company, in line with the recommendations of the market regulator on the amount of tradeable shares in listed stocks. It will be aimed at institutions and wealthy individuals, not at retail investors.
Sail, which is in the midst of a programme to modernise its plants and expand capacity to 24m tonnes annually next year before doubling output again to 50m tonnes by 2025, confirmed that the Modi administration had no radical plans to privatise state companies as suggested by some economists and business leaders.
“The government agenda is very clear,” Mr Verma said. “They don’t want to privatise the government-owned companies…The government has its own funding requirements for the fiscal deficit.”
Among the constraints on Indian steel companies is the shortage of locally-produced coking coal, and Mr Verma also heads International Coal Ventures (ICVL), a consortium of Indian groups including Sail that are seeking to secure coal supplies from abroad.
ICVL has just agreed to pay $50m to buy three Mozambican coal projects, including control of the operating Benga mine, from Rio Tinto, and says it can lower mining costs and overcome the transport difficulties faced by Rio in exporting the coal.
In one of the most disastrous acquisitions in its history, Rio bought the coal assets as part of its $3.7bn acquisition of Riversdale Mining in 2011, but coking coal prices have since slumped from around $350 a tonne to $100 a tonne.
ICVL has now picked up the mines for a fraction of the price of three years ago and plans to raise output from 5m tonnes a year to 12-13m tonnes in three years. “This is a mega-acquisition,” he said, adding that the first shipment of coal was expected to reach India by the end of the year.
Source: FT
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