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Hind Copper offer a sell-out

Mumbai, Nov. 23: The government today kickstarted its stalled divestment programme in style by selling a 5.58 per cent stake in Hindustan Copper for about Rs 800 crore at an average price of Rs 156.56 apiece.

Market mavens said the bulk of the bids came from state-owned entities such as Life Insurance Corporation, the State Bank of India and Punjab National Bank.

Some retail and high networth investors nibbled at the offer, which came laced with the enticing bait of a 41 per cent discount to the market price, but foreign institutional investors (FIIs) chose to stay away.

The government had planned to dilute its stake by 4 per cent in the copper major through the offer-for-sale route, with an option of selling an additional 5.9 per cent.

On Thursday, the floor price for the stake sale was fixed at Rs 155 per share.

Hindustan Copper received bids for 5,16,11,858 shares, representing a 5.58 per cent stake in the company, at an average price of Rs 156.56 per share.

“The approximate gross receipts from the issue is Rs 800 crore,” an official release said.

After the share sale, the government’s equity in Hindustan Copper would come down to about 94 per cent.

Early response to the stake sale, which started at 9.15am, was lukewarm. It gathered momentum towards the closure of the issue, sources said. The share sale took place on separate windows of stock exchanges — BSE and NSE.

Hindustan Copper had kept 25 per cent of the issue reserved for mutual funds and insurance companies.

Union finance minister P. Chidambaram was clearly chuffed by the response to the first share sale under the disinvestment programme and was confident that the government would be able to raise the Rs 30,000 crore it had budgeted in the fiscal year that ends next March.

“I am happy that the issue has been fully subscribed. This is the resumption of the divestment process. We will go forward with the divestment process as approved by the CCEA between now and March,” Chidambaram told reporters in the capital.

“I hope that we can collect the targeted Rs 30,000 crore,” he added.

Disinvestment secretary Haleem Khan said institutional investors participated in the issue, but the details would be known only on Monday.

“We went to the market with 4 per cent and got bids for 5.58 per cent. I don’t think it can be considered a failure. I think it should be considered a good success keeping in view the market conditions...(and) shares are illiquid,” Khan said in New Delhi.

While the announcement of the floor price came after market hours on Thursday, the steep discount at the sale window triggered a slump on the bourses that saw the Hindustan Copper stock tumble 20 per cent to close at Rs 213.05 on the Bombay Stock Exchange today.

Market circles were, however, divided in their reaction to the floor price. Some feel that the counter has a very low floating stock and the share could bounce back in the days to come. The government owns 99.59 per cent of Hindustan Copper.

There were analysts such as Bhavesh Chauhan who recommended that investors should avoid subscribing to the Hindustan Copper offer because of its expensive valuation.

“Although Hindustan Copper is the only vertically integrated copper producer in India, the stock is currently trading at an expensive valuation of 44.4 times 2011-12 EV/EBITDA (a ratio linking enterprise value to earnings) because of a low free float.

“Even at a floor price of Rs 155, it is trading at 2011-12 EV/EBITDA of 24.5 times, which is expensive compared with its peers. Miners such as Coal India, MOIL and NMDC are trading in the range of 5 to 10 times 2011-12 EV/EBITDA,” he said in a note.

Earlier this month, the government deferred a stake sale in National Aluminium Company. Last month, steelmaker Rashtriya Ispat Nigam Ltd shelved a flotation because of a disagreement with bankers over pricing.

Axis Capital, ICICI Securities, Kotak Securities, SBI Capital and UBS were the lead managers for the Hindustan Copper sale.

 
 
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