PSU divestment move: Govt plays it safe

After the fiasco in March this year over the share sale in Oil and Natural Gas Corporation ( ONGC ), the government has softened its stand over the pricing.

The floor price for sale of its four per cent stake in state-run Hindustan Copper Ltd (HCL) was set at Rs 155 a share on Thursday.

This is a 41.8 per cent discount to the current share price of Rs 266 on the stock exchanges, the steepest discount the government has ever offered for selling its stake in any company.

Experts say this might ensure the issue goes through and creates a 'feel good factor' in the stock market, too.

The ONGC offer for sale had to be rescued by government-owned Life Insurance Corporation , as other institutional players stayed away due to the high floor price.

The government had set this at a three per cent premium to the market price. Also, the ONGC issue size was around Rs 12,000 crore; the government intends to only raise Rs 574 crore by selling HCL stake at the floor price.

The share price of HCL rose 16 per cent in intra-day trade on Thursday, as the markets were aware the government would announce an auction floor price for the share sale.

"The floor price set by the government is a fair value price. The share price has seen a sharp rally in the past few months, as the company has very little floating stock - 0.41 per cent - in the market and a large proportion of that, too, is controlled by a few players," said independent equity advisor S P Tulsian .

HCL has issued a little over 925.2 million shares, of which only 3.7 million are traded in the market. The government owns 99.59 per cent in the company and the rest is divided between seven institutional agencies, two trusts, 842 corporate bodies, 27,772 retail investors and 300 non-residential indians.

This is not the first time the government has said it would dilute stake in HCL. The share price had seen a massive rise between December 2011 and February 2012, when the government had announced it would sell stake.

However, nothing materialised and the price fell. The share had risen from a 52-week low of Rs 146 on December 20 to touch a high of Rs 320 on February 2. Last week, it was traded at Rs 222 and has been rising in anticipation of the government announcement.

Tulsian said the few which control the free float of HCL are playing the counter and keeping the share price high. "The fair value for Hindustan Copper is around Rs 150 and that, too, is mainly because the company has a copper mine," he said.

The counter saw a spurt in traded volume on the Bombay Stock Exchange and National Stock Exchange a couple of days earlier. The volumes were double the fortnightly average in the counter.

Copper prices are down a little over six per cent since October. At the current Rs 266 a share, HCL trades at 76 times its 2011-12 earnings per share (EPS), say analysts. At Rs 155, it trades at at 47 times its trailing four-quarter EPS, which might still be expensive by global standards.

Hindustan Copper's first half results saw net profit fall 13 per cent, even while its revenue rose 10.8 per cent, to Rs.596.4 crore.