Steel to join selloff list, RINL may divest 10%

NEW DELHI: The disinvestment programme of the government may soon bring into its fold the country’s growing steel sector. The government is considering a proposal to offload 10% of its equity in profit-making Rashtriya Ispat Nigam (RINL) in the market. In current market conditions, the sale of shares could fetch the government about Rs 2,000 crore. The proposal also includes offering an additional 5% equity in the company in favour of its employees.

“We have received a proposal from RINL to offload 15% government equity to the public and the company’s employees. The proposal is being considered within the ministry. An opinion would also be sought from the department of disinvestment. Once in-principle clearances from the regulatory ministries and departments come, a formal proposal would be drafted for approval of the government,” a steel ministry official said.

The proposal has been favoured by the RINL board, which has already approached the steel ministry for taking the case further. At present, the government owns the entire 100% equity in RINL.

If the proposal is accepted, it would be the first case of disinvestment of a profit-making PSU in the steel sector. Steel minister Ram Vilas Paswan had earlier resisted the move to offload government equity in profit-making PSUs under its administrative control.

“As the proposal is only to offload a minority government shareholding, and that also in favour of general public, it is likely to sail through this time,” the source said.

RINL reported a net profit of over Rs 1,350 crore during 2006-07. The equity capital of the company is around Rs 4,900 crore (book value). At this level, the earning per share (EPS) works out to around 2.7. If this is related with the price-earning (PE) ratio of SAIL, the possible price of RINL shares work out to around Rs 40 per share. This means that by selling 10% of its equity, the government could pocket around Rs 2,000 crore. The employees could also get stocks worth Rs 250 crore.

Under the disinvestment policy, companies such as RINL could bring down government equity by about 25%, but only 15% could be considered in the first installment with another offer later.

The float of RINL shares could improve its market capitalisation and ensure more transparency in its operations through Sebi-formulated disclosure norms, the source said. RINL is also carrying out a major expansion programme under which its steel-making capacity would increase to 6.3 million tonnes by 2010 from 3 million tonnes now with a total investment of Rs 9,000 crore.