The offer for sale from Steel Authority Limited of 24.04 cr shares was completed at an indicative price of Rs 63.07 which was marginally higher than the floor price of Rs 63. The issue was bailed out by LIC, SBI and the PSU banks who have made bids for roughly 3/4th of the total shares on offer. The PSU banks would begin to sell their shares and book losses from the current week itself. This would add pressure to the weak sentiments on the counter of SAIL.
The government has managed to raise Rs 1,516 crs from this divestment no doubt. The share price of SAIL a mere 10 weeks ago was Rs 101.60 which was a tad lower than its 52 week high made in April 2012. In 10 weeks the share has lost Rs 38.20 or 37.60% of its value. The government did divest and raise money but in the process lost over 37% of the value of the remaining 80% of its holding. The pre OFS holding of the government was 85.82% and with the OFS for 5.82% being completed the new holding would now be 80%
The bigger loss would be felt now with the OFS being completed. The issue had to be ‘managed’ to be subscribed and LIC, SBI and the PSU banks were obliged to do the same. SBI and the other PSU banks would begin selling these shares and booking losses. In the process the share price is certain to go down to a minimum of Rs 55 if not more. These shares which are sold by banks need to be bought by investors whether they are institutional or individuals. Assuming that these shares are absorbed around a price of Rs 55, the average would be around Rs 58 and the loss to these institutions would be Rs 5 or roughly 8%. The government would have seen a price erosion of almost 46% from the January high.
The question at the end of the day that comes to mind is whether the objective of divestment has been achieved? I believe no simply because wealth destruction has happened and not wealth creation. The gainers are those people who short sold shares in the futures and hammered down the price. The losers besides the government were those millions of investors who believe that investment in PSU shares is safer than the other private players in the market. This loss of confidence in PSU shares is the real loss of the government.
