India Inc’s biggies see CIL as good long-term bet

MUMBAI: Indian companies such as Reliance Industries (RIL), Hero Honda and Bajaj Holdings that have accumulated billions of rupees have bid for shares of Coal India (CIL), the government-run mining company that will be listed on the stock exchanges on Thursday. RIL, India’s largest private sector firm, and its group companies are estimated to have put in bids worth Rs 6,000 crore while Hero Honda and Bajaj Holdings have each bid more than Rs 200 crore, according to two people involved in the IPO process.

India Inc’s finest will be competing with wealthy individuals for Coal India shares. Sebi norms require 15% to be allotted to so-called non-institutional investors consisting of corporate treasuries and high net worth individuals. While 35% is reserved for retail investors, defined as those investing less than Rs 1 lakh, the remaining 50% is earmarked for qualified institutional investors such as mutual funds and pension funds.

Moneyed individuals have been eager to own Coal India shares, as many think that these would be a good long-term investment in a country where economic growth exceeding 8% will require the burning of fossil fuels for decades. If market intermediaries are to be believed, Azim Premji, the owner of Wipro and one of the richest individuals in the country, has placed bids worth about Rs 700 crore in the Coal India issue. But this could not be independently verified.

A posse of foreign funds such as Janus Capital, Fidelity, Franklin Templeton and Capital International have bid for Coal India shares. SBI, LIC and ICICI are among the leading domestic investors. Both will be allocated shares in the 50% category. Coal India’s IPO drew bids for at least Rs 2.3 lakh crore, or $54 billion.

The issue was subscribed 15.3 times the offer. The company is likely to be India’s sixth most-valuable company and stands a good chance of making it to the most-tracked indices, the 30-share Sensex and the 50-share Nifty. Financial institutions are usually the biggest investors in public offerings and the huge bids by companies in the Coal India IPO have surprised many. In the past, companies, including Reliance Industries, have invested in public offerings of many state-owned companies like ONGC and Powergrid Corporation but the bids this time have been much larger.

“Most of the companies that have invested in the Coal India IPO have surplus cash on their books. Cash-rich companies invest in issues that are decently priced. They hold these shares in their long-term portfolios,” said Ambareesh Baliga, vice-president, Karvy Stock Broking. “Corporate money that gets refunded post-allotment goes back to the books. It (refunds) will not come back to secondary markets as is believed by most marketmen. Cash in books are (only) used for investments and not trading,” he added.

An external spokesperson for RIL declined to offer any comments. “By investing in this issue, corporates are showing their support to the government. Big investments by private companies always get highlighted at the government level. This apart, companies invest in good companies to generate returns on their treasury portfolios,” said SP Tulsian, a Mumbai-based independent investment advisor.

“Corporates will decide on their investments only after getting allotment. If the allotted portion is way below the bid quantity, corporates may not remain invested for long. They will exit the counter on small gains,” he added.
As on March 31, 2010, RIL has a cash and bank balance worth Rs 13,891 crore on its books.

The company has investments worth Rs 3,131 crore in equities, Rs 4,735 crore in debt instruments and Rs 1,193 crore in mutual funds. Hero Honda, India’s largest maker of two-wheelers, has a cash and bank balance of Rs 1,907 crore. It has investments worth Rs 552 crore in debt instruments and Rs 3,313 crore in mutual funds.

Coal India has made share allotments to about 15.5 lakh investors, including 775 qualified institutional buyers and 9,500 high net worth individuals and companies. The remaining investors belong to the retail category. They include the company’s employees. Many retail investors have already been informed through SMS or online. Allotments to institutional investors have been made and are not publicly disclosed.

“Fuel availability and linkages, particularly for power plants, are very crucial and the fact that Coal India is the largest producer of coal in the world has been one of the fundamental reasons for the positive sentiment. This apart, we have seen that the quality of stock and the price value was very attractive,” said a senior official with one of the largest domestic financial institutions.