New Delhi, Oct. 20: The Centre is likely to allow Steel Authority of India Ltd to come out with a follow-on public offer, which will dilute the government’s stake in the steel maker by 5-10 per cent.

SAIL wants to issue new shares amounting to a 5 per cent stake in the company. Officials said the government could piggyback on this by offering a matching 5 per cent stake.

However, the move requires political consensus. The steel ministry will push for the entire package, but the finance ministry, which looks after divestment, will take the final call. The steel maker needs to leverage fresh funds for its ongoing expansion, which will nearly double its current production capacity of 14 million tonnes.

SAIL’s equity base now stands at Rs 4,140.40 crore and it plans to invest more than Rs 37,000 crore. The firm’s debt-equity ratio as of March is 0.27:1 against 0.13:1 a year ago.

The investment plans are likely to raise the ratio further. SAIL prefers to keep the ratio at a healthy 1:1, which explains the need to raise fresh equity.

Officials said the Congress-led government needed to be cautious because it required the support of its allies. The divestment exercise could be derailed if the Trinamul Congress and the DMK raised objections.

The government owns 86 per cent of SAIL, which has its own iron ore and coal mines. A 5 per cent stake dilution could yield SAIL Rs 3,500-4,000 crore.

The government can hope to earn a similar amount if it sells matching equity.

The SAIL scrip hit a 52-week high of Rs 197.50 on the BSE today before settling at Rs 194.70, up 4.03 per cent over yesterday’s close.

However, finance ministry sources said the government, which would like to earn up to Rs 10,000 crore through stake sales in PSUs in this fiscal, would not like to flood the bourses with “good offers” before the stock market has “evened out”.