Why has govt trimmed size of SAIL share offer?

Moneycontrol Bureau

SAIL's offer-for-sale (OFS) issue will hit the market tomorrow and surprisingly, the government which was to offload over 10 percent stake in the company, has now decided to auction smaller stake and looking to sell the remaining portion in FY14.

Though the Empowered Group of Minister (EGoM) is yet announce the floor price of SAIL OFS, there is a buzz that it could be at a premium of around 1.5 percent to yesterday's close of Rs 65.05.

Now, the government will be able to raise only half of its original target of  raising Rs 3000 crore through this OFS issue. This will also lower government's original plan of mopping up Rs 24000 crore in FY13 via various divestment programmes.

What could be the reason for the government to trim its offer size?

SAIL stock is currently trading 30 percent lower to Rs 64.30 that its average of Rs 84.90  in March 2012. Even if the government wants to command a premium over the current market price, which is almost at an all time-low, it cannot fetch handsome returns at this rate.

This will be the second disinvestment after NALCO where the government has trimmed  the issue size fearing adverse market conditions that may lead to tepid response from investors.

Analysts say it makes sense for the government to lower the size of the offering. Given the compulsion to raise funds to bridge the fiscal deficit target, the government is being forced to sell shares at a price lower than what it had been looking to. SAIL's Rs 72,000 crore-expansion plan is underway, and if the project is completed on time, it will boost the stock's valuation. The government can then look to sell the remaining shares at a much higher price.

Read This:  SAIL OFS to hit market on March 22, stock up