Starved of sources to raise money to splurge on subsidies in an election year the Union Finance Ministry has asked the Coal Ministry to consider selling 10 per cent of Coal India through an Initial Public Offer.
Coal India Ltd has a paid-up capital of Rs 6,316 crore and posted aggregate profits of Rs 9,576.22 crore in 2007-08, 12 per cent higher than the previous financial year. Besides detailed financial information on CIL, the Finance Ministry is understood have also sought the Coal Ministry’s assessment of the company’s valuation in today’s market condition.
The government had two years ago proposed a partial stake sale of five per cent in CIL through an initial public offer (IPO). The proposal did not find favour with the political establishment. But now that the election is just about a year away the political objection might not be that stiff. Sensing this perhaps the Finance Ministry has now asked the Coal Ministry to reconsider the IPO proposal.
The Coal Ministry will require a third party opinion on valuation. And rightly so since coal prices in the Indian market are regulated. Valuation will necessitate global benchmarking. The IPO could be through a combination of issue of fresh shares and part sale of government equity. It remains to be seen if the likely angry objection from the Left , which has a strong trade union in the coal sector, will be sincere or just election-year rhetoric.
CIL’s equity base comprises 63.16 million equity shares of Rs 1,000 each. The shares of Rs 1,000 face value are likely to be split to 100 shares with a face value of Rs 10 each before the IPO. A 10 per cent IPO will help mobilise funds to the tune of more than Rs 7,000 crore. While the funds raised through fresh issue of shares would be used by CIL for its own expansion plans, that mopped up through sale of government equity would accrue to the government kitty. This is what the finance minister will like to use.
The Coal Ministry has reportedly left the issue with Coal India. The ministry remembers how the government had to eat the humble pie when it wanted to disinvest Neyveli Lignite Corporation through an IPO due to the alliance’s southern ally, the Dravida Munnetra Kazhagam, threatened to pull out. But in case of Coal India, if the IPO comes, Left will be left with little time to pull out its support to the government since by the time the process matures it will be election time in the country.
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