Coal India IPO heavily oversubscribed on third day

By Sumeet Chatterjee and Prashant Mehra

MUMBAI (BestGrowthStock) – State-run Coal India’s IPO to raise as much as $3.5 billion was nearly 12 times subscribed on by late Wednesday as big investors rushed into the offer during the final hours for institutional orders.

Demand of roughly $40 billion with one day of book-building from retail investors to go gives the government leverage to price the offering toward the high end of its 225-245 rupee per share range.

At the top of the range, Kolkata-based Coal India, which accounts for nearly 80 percent of coal output in Asia’s third-largest economy, would be worth $35 billion, ranking it seventh among India’s listed firms.

“There is now little doubt that the issue would be priced at the top range of the band. It’s a foregone conclusion,” said Jagannadham Thunuguntla, equity head of SMC Capital in New Delhi.

India’s largest initial public offering drew bids for about 7.3 billion shares, or 11.6 times the 631.6 million shares on offer as of Wednesday, with most bids at the high end, exchange data showed.

The robust response bodes well for India’s plan to shed stakes in roughly 60 state companies in the next few years.

Foreign institutions applied for about $27 billion in shares, on top of record flows into Indian stocks this year that recently pushed the rupee to a 25-month high.

A dominant position in a country that is heavily reliant on coal-fired power and a valuation considered attractive relative to peers has made Coal India a near must-own for investors seeking broad exposure to an economy growing at 8.5 percent.

A 5 percent discount has been offered to retail investors who often take their cue from institutions and were expected to place heavy orders on the final day on Thursday.

“It’s a safe investment bet as it is a government company, and long-term gains are assured. I know for sure that I will benefit in the long run,” said Navnit Doshi, a 59-year old businessman in Mumbai.

COAL RUSH

The IPO is on track to surpass Reliance Power’s (RPOL.BO: ) $3 billion listing in 2008 as India’s largest new issue, and comes to market amid a flurry of big deals in Asia.

Heavy demand for AIA Group Ltd’s up to $20.5 billion share sale in Hong Kong led underwriters to shut the offering to funds two days ahead of schedule, sources told Reuters on Monday.

Coal India, whose shares will begin trading on November 4, expects profits to rise by a quarter this fiscal year, driven by demand for electricity in India, three-quarters of which is fueled by coal.

Demand for coal is forecast to grow 11 percent a year in India, which aims to halve its peak-hour power deficit of nearly 14 percent over the next two years.

At the top of its price range, Coal India would be valued at 15.7 times trailing earnings.

China’s Shenhua Energy (601088.SS: )(1088.HK: ) trades at 16 times trailing earnings, while smaller Indonesian peer Adaro Energy (ADRO.JK: ) has a ratio of 20 times. U.S. miner Peabody Energy (BTU.N: ) trades at 25 times earnings.

Morgan Stanley (MS.N: ) (Read more about the money market today. ), Citigroup (C.N: ), Kotak Mahindra Capital (KTKM.BO: ), Enam Securities, Deutsche Bank (DBKGn.DE: ) and Bank of America-Merrill Lynch (BAC.N: ) are managers on the offer.

(Additional reporting by Ami Shah; Writing by Tony Munroe; Editing by David Cowell)

Coal India IPO heavily oversubscribed on third day