Sat June 15 2013
In a bid to ease India's
turbulent equity markets and to kick start its $6 billion (` 400 billion) divestment
programme, the Indian government decided to shed its 9.33% stake in the Metals
and Minerals Trading Corporation of India, also known as MMTC, which was
expected to fetch around $104 million (`
6 billion).
MMTC is one of the two highest
earners of foreign exchange for India. It is also India's largest importer of
gold and silver, and the largest bullion supplier with several outlets across
the country.
The MMTC stake sale was
oversubscribed 1.33 times and the Indian government garnered over $98 million (` 5 billion) on Thursday, June 13,
but it was at a steep discount of over 72% to the market price.
The discount came as a result of
the sale needing to conform to the rules on minimum public holdings but, a
number of commentators raised concerns that the sale at such a discount would
increase fears within the markets that similarly wealth-eroding sales would
take place in other state-controlled firms, especially in the commodity sector,
which have lined up share sales over the next two months.
The minimum price for the sale
was $1.04 (` 60) a share, as
compared with the stock's closing price of $3.66 (` 211.45) on June 12. Data showed bids averaged ` 60.86 a share on Thursday itself.
"Given the shock-and-awe that most Indian consumers are undergoing now,
with the increase in import duty and curbs on gold buying, the government must
have thought this would be the best time to bring down its holding in MMTC to
90% through the offer for sale. The deep discount also shows the government is desperate to raise revenues,''
said an official at a public sector nominated bank, that has been allowed to
import gold into the country.
The issue is the first divestment
this fiscal, but it also underscores the apparent hurry the government is in.
The massive discount is also being questioned in many quarters, the official
added. The MMTC issue has seen interest from all sections of the market.
Institutions, retail investors and high net worth individuals have participated
in huge numbers, while the Life Insurance Corporation of India was among the
top bidders at the auction.
On June 14, shares of MMTC hit
the lower circuit for the second straight session on the bourses, following the
sale. The stock has corrected over 36% in the past one month as investors
exited on concerns of lower offer-for-sale price.
The stake sale was originally
slated to take place in March, and was deferred on valuation concerns.
In 2012-13, MMTC reported a 57%
decline in total revenues during the period as compared to the previous fiscal.
The company had reported a profit in 2011-12.
Meanwhile, other government controlled firms such as Hindustan Copper, SAIL, Nalco, National Fertilizer and Neyveli Lignite have also shed between 20% and 70% of their market value so far this year. The government's decision to offload the stocks cheap has met with criticism with analysts saying that it would be at the cost of existing shareholders.
Source: mineweb.com