India’s government is selling a minority stake in the nation’s largest coal producer as it tries to meet its disinvestment targets for the year

• The central government is all set to raise a crucial sum of ₹140 billion by offloading a 9% stake in the state-owned Coal India this week.
  
• The sale will not only help the government as it tries to meet its disinvestment target, but also help it comply with a law that states that all publicly-listed state-owned firms should have a public shareholding of at least 25%.
  
• The Department of Investment and Public Asset Management (DIPAM), the ministry in charge of overseeing the government’s disinvestment programme, has only raised a meagre ₹100 billion so far this year, compared to a target of ₹800 billion.
  

Faced with strained finances, the central government is all set to raise a crucial sum of ₹140 billion by offloading a 9% stake in the state-owned Coal India, the country’s largest coal producer and miner, this week, according to a stock exchange filing. Of this, 3% will be sold to the institutional investors while an additional 6% will be offloaded directly to retail investors if the offer is oversubscribed.

The sale will not only help the government as it tries to meet its disinvestment target for the year, but also help it comply with an important Indian law, which states that all publicly-listed state-owned firms should have a public shareholding of at least 25%. Once the listing of a 9% stake is completed, the Centre will retain a 69% stake in the coal producer.

The government needed to increase the public’s shareholding in Coal India to 25% by August 2017- a deadline which was reportedly extended as it deliberated over the sale and waited for a optimal share price. In early 2015, the government listed a 10% stake in the company, earning ₹230 billion in the process.

Disinvestment woes

Despite the share sale, the government could fall short of its disinvestment target of ₹800 billion for 2018-19, which is significantly less than the ₹1 trillion it raised last year. It has a number of further offerings lined up in this year but could suspend them owing to weak market conditions.

The Department of Investment and Public Asset Management (DIPAM), the ministry in charge of overseeing the disinvestment programme, has only raised a meagre ₹100 billion so far this year. Indian markets have been battered this year amid an exodus of foreign capital outflows, a depreciating currency, rising fuel prices and global trade tensions.

The sale of a 9% stake in Coal India marks the government’s first offer-for-sale in the current fiscal year. As the year winds to a close, it is expected to accelerate its disinvestment programme by merging a number of public-sector companies in the power sector. Potential deals include a takeover of SJVN, a hydropower producer, by NTPC, India’s largest power generator.

However, experts have cautioned against the move, saying that by forcing large state-owned companies to take over smaller ones, the government could be putting the profitability of large public-sector firms at risk.