Coal India Ltd.’s share sale attracted bids that exceeded the combined gross domestic product of Latvia and Iceland as investors bet the mining company will benefit from energy demand in the second-most populous nation.
The world’s biggest coal producer drew orders worth at least $48.7 billion after the 631.6 million shares on offer were subscribed 15 times in the sale that ended yesterday, data on the website of the National Stock Exchange showed. The government is selling a 10 percent stake at 225 rupees to 245 rupees a share in the initial public offering.
Investors expect the Kolkata-based company will gain as India, which uses coal to produce more than half of its electricity, increases generation capacity to sustain economic growth. The government aims to raise as much as 151.5 billion rupees ($3.4 billion) in the country’s biggest share sale, topping the 116 billion rupees raised by billionaire Anil Ambani’s Reliance Power Ltd. in January 2008.
“Coal India’s near monopoly in India and cheap coal ensures there is potential upside to the stock,” said Juergen Maier, who helps manage the equivalent $1.3 billion of assets, including Indian stocks, at Raiffeisen Capital Management in Vienna. “There’s a lot of money coming into India. The India story sounds very good.”
Overseas investors bought a record 1.1 trillion rupees of Indian equities this year, pushing the benchmark Sensitive Index to a near record this month.
AIA Share Sale
Emerging-market equity funds have attracted more than $60 billion of net inflows this year as central banks in Europe and Japan stepped up efforts to reduce borrowing costs, spurring demand for higher-yielding assets, according to research firm EPFR Global based in Cambridge, Massachusetts.
Investors ordered more than HK$1 trillion ($129 billion) worth of AIA Group Ltd. shares in Hong Kong’s biggest IPO, two people familiar with the matter said today.
Coal India may raise the maximum amount from the offer, according to three people with direct knowledge of the matter. Sale arrangers will advise the government to sell shares in the state-run company at 245 rupees, the top end of the offered range, the people said yesterday, declining to be identified because the matter is confidential.
“Shouldn’t the government wonder if the offering was not priced properly and too much money was left on the table?” said Seth Freeman, chief executive officer of San Francisco-based EM Capital Management LLC, which focuses on emerging markets including India, China and Vietnam.
A group of ministers will decide on the price on Oct. 25, one of the people said.
“The government could’ve priced Coal India a little higher,” said Arun Kejriwal, the Mumbai-based director of Kejriwal Research & Investment Services Pvt. “By reasonably pricing the Coal India issue, the government is ensuring demand and euphoria for the other issues coming up.”
The government plans to sell stakes in seven more companies in the next five months, Disinvestment Secretary Sumit Bose said Oct. 19. State-run Power Grid Corp. of India Ltd. will start its follow-on offering from Nov. 9.
The government seeks to raise 400 billion rupees from asset sales in the year ending March 31. The Coal India offer will meet 38 percent of the target as the nation seeks to reduce its fiscal deficit and build infrastructure.
At the top of the price range, Coal India would be valued at about $34 billion. China Shenhua Energy Co., a unit of the nation’s largest coal producer, had a market value of $87 billion and Peabody Energy Corp., the largest U.S. coal producer, $14 billion, according to data compiled by Bloomberg.
Institutions bid for 7 billion shares or 24.7 times the stock offered to them, according to the exchange’s website. Foreign institutional investors ordered 4.9 billion shares.
The value of all the bids that Coal India received was 26 percent of what Reliance Power got following a rule change by India’s capital markets regulator in May, requiring investors to put up their entire application money upfront. In contrast, institutional investors put in 10 percent as margin money during the Reliance Power IPO, which attracted bids worth $189 billion for shares sold at 450 rupees apiece.
“This is real money coming in to the sale,” said Kishor Ostwal, managing director of CNI Research (India) Ltd., a publicly traded equities research provider in Mumbai. “Foreign investors are very bullish on India’s growth story.”
Reliance Power declined 17 percent on its trading debut on Feb. 11, 2008, as a global sell-off in equities dried up appetite for new shares. The benchmark Sensex fell 53 percent in 2008, the biggest annual decline since at least 1980.
The index has climbed 15 percent so far this year and is the best performer among the world’s 10 largest stock markets.
Enam Securities Pvt. is managing the Coal India sale along with Citigroup Inc., Deutsche Bank AG, Bank of America Corp., Kotak Mahindra Capital Co. and Morgan Stanley.
India’s coal demand may more than triple in the next two decades to 2 billion metric tons, Coal Minister Sriprakash Jaiswal said on Sept. 24. The country is building power plants and steel mills to meet demand in the $1.3 trillion economy, which expanded at the fastest pace in 2 1/2 years in the three months ended June 30.
India produces 530 million tons of coal a year and imports about 67 million tons, Jaiswal said at the time. Coal India has proven reserves of 52.55 billion tons, of which 21.75 billion is extractable, the company’s share-sale document shows.
India’s government has pledged to provide electricity nationwide by 2012, which would require an installed generation capacity of 200 gigawatts to sustain economic growth of 8 percent, the power ministry said on its website. The country had 165 gigawatts as of Aug. 31, according to the Central Electricity Authority.
Latvia had a GDP of $26 billion, more than double Iceland’s $12 billion, according to data compiled by Bloomberg.