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March 5, 2013 8:37 am
The Indian government plans to sell nearly 11 per cent of state-controlled Steel Authority of India Ltd (Sail) by the end of this month, raising about $600m to cut the budget deficit in the current fiscal year, according to company chairman C.S. Verma.
Mr Verma, before leaving for roadshows in the US and the UK, said on Tuesday that the government would sell 10.82 per cent to cut its holding to 75 per cent, despite recent falls in the share price of Sail, India’s largest domestic steel company by output.
“This will happen this fiscal year”, which ends on March 31, he said. “It will help the government to contain the fiscal deficit.”
Some Indian brokers had expected the government to wait for a share price recovery before selling a further stake in Sail, especially since it baulked at selling more of its shares two years ago when the price was more than double the current level. But with no quick recovery expected, a sale now still made sense, they said.
“We have a sell rating on the stock, so I think they are doing the right thing,” said Sanjay Jain, metal analyst at Motilal Oswal Securities. “We have a negative view of the steel sector. We think the price of steel will go down, and they can’t remain untouched.”
Palaniappan Chidambaram, finance minister, has launched an array of economic reforms since he re-entered the job last year, and wants to raise Rs300bn before the year-end through privatisations to help limit the central budget deficit to 5.2 per cent of gross domestic product.
Sales of a 9.5 per cent stake in NTPC, the power company, and other government assets have already raised more than Rs200bn ($3.6bn), and the Sail share disposal would add another Rs30bn at the current share price.
Mr Verma, who also chairs International Coal Ventures, a consortium of Indian state companies with plans to buy coal mines abroad to supply Indian industry, said that group was performing due diligence on “three or four proposals” to buy mines. Assets under consideration are in Australia, Mozambique, the US and Indonesia.
India’s steel companies have access to domestic supplies of iron ore – Sail has its own mines – but need to import millions of tonnes of coking coal each year.
Mr Verma said Sail’s $13bn investment plan would boost steel output by 50 per cent within 18 months to 21.4m tonnes a year. A subsequent expansion programme would further boost capacity to 45m tonnes annually, he said.
“India is ultimately the demand centre,” he said, noting that per capita steel consumption was 55kg a year compared with a global average of 200kg. “There’s a lot of scope for expanding steel capacity and steel consumption in India.”
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