Exclusive: Lack of investor interest puts Rashtriya Chemicals, National Ferilizers OFS on back-burner

The government is looking to raise Rs 51,000 crore through disinvestments in 2023-24.

The offer-for-sale (OFS) in central public sector enterprises (CPSEs) Rashtriya Chemicals and Fertilizers Limited (RCF) and National Fertilizers Limited (NFL) is unlikely to take off in the second quarter as the government had hoped on account of lack of investor interest, according to two people familiar with developments.

"The OFS in fertiliser PSUs is not happening. There is no interest from investors. Transaction advisors have conveyed this to DIPAM (the Department of Investment and Public Asset Management)," a senior government official told Moneycontrol.

The finance ministry has been trying to shed a 10 percent stake in RCF and 20 percent stake in NFL. Put together, the two stakes are said to be worth approximately Rs 1,200 crore.

The Centre is looking to raise Rs 51,000 crore via disinvestments in 2023-24. So far this year, it has raised Rs 5,601 crore.

"The markets are doing fine. But since fertiliser prices are regulated, investors are not keen. DIPAM has received a similar response from not less than 10-20 domestic and global investors. The transaction advisors have reached out to all. The investment of foreign investors is not even 0.5 percent currently in the fertiliser PSUs. This is despite these PSUs having given huge dividends to the government. The issue is not with these PSUs but the sector," the official added.

Transaction advisors for RCF are Kotak Investment Banking and IDBI Capital. For NFL, BOB Capital Markets Ltd and IDBI Capital are the advisors.

As such, while the finance ministry is ready to roll out OFS in the two fertiliser PSUs, there is no decision likely on the matter. Roadshows for the two PSUs were held at different locations, including Singapore, in December 2022.

A mail to the finance ministry seeking comments remained unanswered till publication of this article.

The DIPAM has issued OFS for Rail India Technical Services and Coal India so far in 2023-24. The department has a number of other OFS in the pipeline, including that of Indian Railway Construction International Limited (IRCON), Mazagon Dock Shipbuilders Limited (MDL), and Housing and Urban Development Corporation Limited (HUDCO).

"There is a status quo for OFS in RCF and NFL due to lack of investor interest. There is an opportunity cost for investors. They are more interested in OFS in defence and railway PSUs. The profit is stagnant in fertiliser as it's a regulated sector. Relatively, the profit is far higher at PSUs in other sectors," another person aware of the development told Moneycontrol.

Once the fertiliser sector moves towards greater reliance on nano urea, which is not regulated, maybe the market interest towards these PSUs will improve, the second person cited above said.

Also Read: Rashtriya Chemicals and Fertilizers gains 4% on green nod to nano-urea plant

While the price of a 45 kg bag of urea is fixed at Rs 242 after subsidy, 500 ml of nano urea is priced at Rs 240 without subsidy.

"Price regulation and subsidy are not required in nano urea. Profit for PSUs is also more in the case of nano urea. Once the price regulation for the fertiliser sector reduces, the market will show more interest but it will not happen immediately," the first official said.