Coal India's IPO lifts privatisation proceeds to record high

The country's largest ever IPO raises $3.46 billion and pushes the volume of government share sales year-to-date to $8.3 billion.

The completion of Coal India’s initial public offering earlier this week has pushed the volume of Indian government share sales this year to a record $8.3 billion, more than four times the $1.8 billion raised from two issues in 2009, data provided by Dealogic show.

And further sales are expected in the coming two months, including a further sell-down by the government in Power Grid Corp and an IPO of Manganese Ore India.

Coal India raised Rs154.75 billion ($3.46 billion) after strong demand from both institutional investors, and corporate and high-net-worth individuals allowed the price to be fixed at the top of the range. The deal was the largest IPO in India ever, ahead of Reliance Power’s $3 billion offering in January 2008.

All the shares on offer where secondary shares sold by the government and the deal reduced the government’s stake in the country’s largest coal miner from 100% to 90%. Aside from helping to boost the government’s coffers, the sizeable deal also pushed this year’s stock privatisation volume from the four Bric nations (Brazil, Russia, India and China) to $55.1 billion, more than twice the $24.7 billion raised in 2009 from 26 issues. China accounts for about 75% of this year’s total, while India makes up 15% and Brazil 10%.

The Coal India offering also pushed the total IPO volume in India so far this year to $9.6 billion, just shy of the record $9.7 billion raised from new listings in 2007. At $26 billion, the volume of total equity issuance, including equity-linked deals, is still well below the $34 billion raised in 2007, however.

The Coal India IPO was 15.3 times covered overall and attracted $27 billion of demand from international investors alone. The retail offering was 2.1 times covered, but according to sources, the number of retail orders was greater than on any other public sector share offering in India.

The fact that Coal India is the largest coal producer, not just in India, but in the world and supplies coal to a nation with a seemingly insatiable demand for energy to plug the persistent power shortages that continue to plague its industrial sector, clearly helped attract investors to the deal. But most also viewed the valuation as fairly undemanding. Even at the top end of the range, the stock came at a discount of about 10% versus China Shenhua Energy, which is viewed as the closest comparable. Prior to Coal India, Shenhua’s $3.3 billion IPO in 2005 ranked as the largest mining sector IPO globally.

Because of its greater scale and excellent margins, analysts expect Coal India to trade at least on par with Shenhua in the long-term, meaning the discounted price did suggest room for gains in the secondary market.

The deal comprised approximately 631.6 million secondary shares that were offered at a price between Rs225 and Rs245 each. The bookbuilding closed last Thursday and the final price was announced earlier this week. The trading debut is scheduled for November 4.

The deal was arranged by Bank of America Merrill Lynch, Citi, Deutsche Bank, Enam, Kotak Mahindra and Morgan Stanley.

¬ Haymarket Media Limited. All rights reserved.
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