Well begun, half done

It surprised no one that the government successfully accomplished the disinvestment of Hindustan Copper Limited on Friday. Though the markets had initially not picked up the paper, the one-day offer-for-sale issue managed to get there about five minutes before time. The stake sale was oversubscribed, with 51.61 million shares, a 5.58 per cent stake in the company. Chastened by the ONGC fiasco, the government had taken the precaution of offering a hefty 42 per cent discount on the share price to entice investors, and had changed the rules this week to make it easier for LIC to bring its purse to the auction. The government will realise about Rs 800 crore from the sale, a good start to its disinvestment season, which aims to raise about Rs 30,000 crore from the markets. Since the telecom auctions have not brought in any money for the government, the sale of shares in public sector units will be the biggest source of non-tax revenue this fiscal.

The mechanism of Friday's sale meant HCL shares were trading at two prices on Friday. There was the offer price of Rs 155 for the new shares, even as existing traded shares began at a price of Rs 225.35 and then travelled downwards, hitting the floor of the trading band. So even as the government was trying to entice investors to pick up the former, holders of the more expensive papers were selling out. While this can be partly put down to the sluggishness of the markets despite the obvious attraction of HCL, it also shows how tricky the disinvestment process will be for the finance ministry. HCL is a public sector company, India's vertically integrated copper player with operations across the entire value chain of the mineral. But because of its low float, it was trading at a price-earnings multiple of 44, and will still, at the new price, be available at a price-earnings multiple of 24.5. To remain an appealing proposition, the HCL scrip will have to reverse the present decline, generating returns for the investor.

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