KOLKATA (miningweekly.com) – Fearing poor valuations owing to lower production and offtake, the Indian government is likely to defer plans to divest holdings in Coal India Limited (CIL).
The government had planned to sell a 10% equity stake in the current financial year, but indications are that this will be deferred until the next year, or at least until the country’s largest miner is able to improve its volumes and its shares become more attractive to private investors.
CIL’s share price is down 23% over the last year, while its production growth has been in negative territory for the past three months.
In April, CIL registered negative production growth of 4.7% followed by negative growth of 4.3% in May and negative growth of 7.2% in June, according to public data.
Growth in offtake was also nominal during these three months, falling from 6.1% in April to 1.9% in May and 1.6% in June.
The government had been keen to push ahead with a further 10% disinvestment from its current 78.86% equity holding in CIL to raise funds for government budgetary spending and also to meet the minimum floating equity with private investors as mandated by the regulatory body for all government-owned and -managed companies.
All government-owned companies have to adhere to listing norms, which includes a minimum 25% public holding, by August next year.
However, government officials say that there is no clarity yet as to whether CIL disinvestment can be completed by the deadline in view of current market conditions.
In the course of several meetings with merchant bankers over the past 17 months, the government has come round to the view that CIL equity shares have lost much of their lustre from the dip in performance on one hand and surplus electricity generation and the resultant fall in demand for coal from thermal power plants on the other, the officials say.
The Coal Ministry has already announced that 5.5 GW of inefficient thermal power plants will be phased out. It is not clear what impact this will have on aggregate coal demand as no timeline had been set for the phasing out, the officials add.
However, by deferring the CIL divestments, the government is expecting the nascent positives of falling stocks and a reversal of falling demand from thermal power plants, to gain momentum in the interim and to, in turn, make investment in CIL by private investors more attractive than it is now, the officials said.
Over the past year, 12 new thermal power plants began generation adding 10 290 MW to the country’s aggregating capacity. As of early this month, pithead stocks of CIL were also down 43% compared to the same time last year, while imports of the fossil fuel were down 46% over the past year.