Coal India’s Share Sale Draws $314 Million of Bids in First Hour

Coal India Ltd., the world’s biggest producer of the fuel, received 13.9 billion rupees ($314 million) of bids at the upper end of the price range in the first hour of the nation’s biggest initial share sale.

Investors bid for 56.74 million, or 9 percent, of the 631.6 million shares on offer as of 11 a.m. in India, according to data on the National Stock Exchange’s website. The state-owned company’s stock is being offered at 225 rupees to 245 rupees apiece, Coal Minister Sriprakash Jaiswal said Oct. 12. The government plans to raise as much as 151.5 billion rupees from the sale.

Sixteen of 19 investors surveyed by Bloomberg News said they plan to buy shares in the world’s largest coal producer. The sale is the third offering in a state company since April as the government seeks to cut its budget deficit and fund infrastructure projects. Steel Authority of India Ltd., Oil & Natural Gas Corp. and Indian Oil Corp. also plan to sell shares.

“The IPO will easily get subscribed and that is because the valuation is fair,” Samir Arora, founder of hedge fund Helios Capital Management Pte. in Singapore, said by telephone today. “That’s the biggest attraction. It’s a large company and it’s relatively cheap.”

Institutional investors in India delay making bids until the last day of an IPO after the country’s market regulator in May made it mandatory for them to pay 100 percent of the application money upfront. Almost 90 percent of bids in Standard Chartered Plc’s $540 million India share sale in May came on the final day.

India’s coal imports surged 16 percent in the year ended March 31 as power plants burned more of the fuel to meet demand in Asia’s second-fastest growing major economy. Coal India will seek environmental clearances from the government to mine in densely forested areas in states including Jharkhand and Chhattisgarh estimated to hold half of its future output.

Government Target

The IPO by Kolkata, West Bengal-based Coal India would surpass Reliance Power Ltd.’s 116 billion-rupee sale in January 2008 as India’s biggest, according to data compiled by Bloomberg. Reliance Power sold shares at 450 rupees apiece and investors ordered shares worth as much as $189 billion. The shares slumped 48 percent from the offer price on their trading debut on Feb. 11, 2008.

Citigroup Inc., Deutsche Bank AG, Bank of America Corp., Enam Securities Pvt., Kotak Mahindra and Morgan Stanley are managing Coal India’s offering. The sale closes on Oct. 21.

The share sale will help the government raise 37.8 percent of its 400 billion rupee asset-sale target in the year ending March 31. The South Asian nation has raised 5.2 percent of its target from selling stakes in two state companies this year.

Coal Demand

Investors are buying shares as India builds power plants and steel mills to keep pace with an economy that expanded at the fastest pace in 2 1/2 years in the three months ended June 30. India’s coal demand may more than triple in the next two decades to 2 billion metric tons, Coal Minister Jaiswal said Sept. 24.

India’s Sensitive Index has gained 14 percent this year, the best performance among the world’s 10 largest stock markets. The Sensex gained about 47 percent in 2007, the most in four years. In 2008 the gauge fell almost 53 percent, its biggest decline.

Companies from emerging economies in the Asia-Pacific region raised over $72 billion in initial sales this year, more than triple the amount in the same period in 2009, according to Bloomberg data. Beijing-based Agricultural Bank of China Ltd. sold $22.1 billion of shares in Shanghai and Hong Kong last quarter in the world’s largest IPO.

Coal Production

The nation produces 530 million tons of coal a year and imports about 67 million tons annually. Coal India has proven reserves of 52.55 billion tons, of which 21.75 billion is extractable, the share-sale document shows.

Coal India may miss its production targets for 2011 and 2012 because of delays in environmental clearances, Chairman Partha Bhattacharyya said Oct. 13, without giving new estimates.

The company had aimed to produce 460 million tons in 2011 and 486 million tons the next year, Bhattacharya said on May 20. Environmental approvals to prospect for more reserves take as long as seven years in India, he said.

The environment and coal ministries are jointly identifying areas for coal mining designated as “go” and “no-go” areas to find ways to boost output of the fuel to meet surging demand.

“No-go” areas are locations with medium or heavy density forests while degraded forests are go-areas, Minister for Environment and Forests Jairam Ramesh said in June last year. Ramesh rejected last month Vedanta Resources Plc’s planned bauxite mine and halted in August two hydropower projects.

Maoist insurgents are also a risk. Rebels are active in seven eastern and central states with 40 billion tons of India’s 46 billion tons of proven coal reserves, according to CLSA Asia- Pacific Markets estimates.