disinvestment

Disinvestment effect on PSU stocks: Should

investors stay put?
R. YEGYA NARAYANAN
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Host of Govt-owned stocks sink to new lows
COIMBATORE, JUNE 13:
On the day MMTC made a successful offer-for-sale of 9.33 per cent of its equity at a steep
discount to the market price, the stock sank to a 52-week low.
The sullen mood of the investors was evident as all the 20 stocks forming the CNX PSE index
closed in the red with eight of them hitting a fresh 52-week low on the NSE on Thursday. Two
major PSEs BHEL and Coal India came very close to hitting new 52-week lows.
The trend extended beyond the PSE index with Neyveli Lignite Corporation Ltd, another
disinvestment candidate, falling to a new 52-week low of Rs. 57 before pulling back.
HOLD OR SELL?
disinvestment

But what was worrisome was that Coal India Ltd, on which the Government is banking on to
raise almost 50 per cent of its disinvestment target of Rs. 40,000 crore this year, dropped to a low
of Rs. 295.60 which is very close to its 52-week low of Rs. 289.40.
It raises a nagging question as to whether those who are already invested in PSEs slated for
disinvestment should hold on to them or exit to re-enter later. The experience of investors of
even some of the PSEs with a substantial asset base such as NMDC has not been positive. In fact
NMDC stock has lost nearly 40 per cent in value since the OFS in December.
D. Balasundaram, Chairman of Coimbatore Capital Ltd, and former President of the Coimbatore
Stock Exchange, said the problem with MMTC was that it was mainly a trading company
without any large physical asset. The fact that the floating stock was less than one per cent of its
equity had contributed to the very high valuation of the stock, which had a 52-week high
of Rs. 860 on the NSE (August 16, 2012). That was huge price to pay for a Re 1 stock.
SAFETY MECHANISM
On whether the Government should look at options such as buy-back of the entire floating stock
before going for a public issue of low-float companies to avoid huge losses to existing investors,
he said this was not a workable solution. Buy-back would have to be done at (inflated) market
price before Government offers the shares again through an IPO. Instead, the Government might
think of some safety mechanism as in the case of SMEs to protect investors interest.
Balasundaram felt that it would be prudent for retail investors not to buy shares through the
FPO/OFS in illiquid stocks but wait for the share price to stabilise post issue before they pick
them up. This was because low-floating stock might give a stretched valuation which might not
be sustainable.
However, as the Government races to meet its fund-raising goal by selling listed PSE shares
below their market price, the pain for their existing investors continues to grow since the stock
prices slide post-issue. This may lead to huge sell off by investors before issues hit the street,
impacting their value and in turn the amount raised.
yegya.narayanan@thehindu.co.in
(This article was published on June 13, 2013)
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Coal India disinvestment only after Cabinet nod
MMTC stock hits 52-week low on offer-for-sale day; host of PSEs sink to new lows
TOPICS
economy, business and finance |public sector undertaking |stocks and shares |
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