Tags:
Journalism of Courage
The initial public offer IPO of the until-now 100 per cent state-owned Coal India opens at the stock markets today; the government is divesting 10 per cent of its stake in the coal behemoth. The government has announced a price band of Rs 225 to Rs 245; a price in that range should fetch the government Rs 15,000 crore. That also makes this the biggest IPO to arrive in Indias stock markets since the ADAG group raised around Rs 10,000 crore in early 2008. As has been the case with other divestments in the recent past,questions will be asked about the pricing some analysts believe that it is too high to attract retail investor interest,something that derailed the governments IPO of NMDC,in March 2010,for example. What is,however,different now is the highly buoyant state of the Indian stock markets,with institutional investors,both domestic and foreign,keen to cash in the lucrative returns on offer. So,unlike in the NMDC case,the government will almost certainly not need to scramble domestic financial institutions to bail out this IPO.
What about the company itself? Coal India has the largest coal reserves of any coal company in the entire world. It is a public sector monopoly,which ensures high returns. It has a decent sum of cash reserves. Add to all that the fact that in the near future,Indias energy demands are likely to be satisfied mainly through power generated by coal,and the prospects of Coal India look good. However,it isnt a company without downside risks. Coal India is forced by the government to sell its coal to local buyers at 50 per cent of the international price. The company has problems transporting its vast coal reserves because of a shortage of rail wagons. And if the future is about clean energy,then coal will at some point have to be discarded as a primary source of fuel.
For now though,investors are more likely to look at the upsides. That will help boost the governments stop-start divestment programme and it will also bring greater scrutiny on,and transparency in,the functioning of the largest coal company in the world.
