Balco IPO on the table

New Delhi, June 17: The Congress-led government is considering an initial public offer (IPO) to discover the share price of Bharat Aluminium Company (Balco) before deciding on the sale of its rump stake in the aluminium maker through a negotiated deal.

The government can get up to Rs 3,000 crore from the IPO of Balco, in which Sterlite Industries of Anil Agarwal’s Vedanta group is claiming purchase rights on the rump shares.

Top finance ministry officials said a committee of secretaries, which had been meeting to discuss the government’s options as well as negotiating with Sterlite, had agreed that it would be best to list Balco and discover the company’s share price before trying a negotiated share sale.

While the government currently owns a 49 per cent stake in Balco, Sterlite has a controlling 51 per cent equity in the profitable aluminium firm.

Though the stock market is going through a bear phase, it is expected to recover by October, and any IPO that the government may agree to will come only around that time.

Officials said the IPO could be the first disinvestment of shares by the government, though a flotation of RITES — a consultant in transport infrastructure — is also being considered by the railway ministry.

Nalco, a similar state-run aluminium firm, commands a market price of Rs 490 a share, down from a 52-week high of Rs 566 a share, because of the current stock market meltdown, but still quite respectable. Nalco’s market capitalisation stands at Rs 31,275 crore.

Officials say that at a similar market capitalisation, a 10 per cent selloff through the IPO can fetch the government Rs 3,000 crore.

In April 2006, Sterlite had sent a cheque of Rs 1,098 crore to the government for the latter’s 49 per cent stake, under a shareholders’ agreement.

This agreement allowed Sterlite to call for the shares after the lapse of a certain time period.

But the Centre, which had sold the controlling stake in Balco to Sterlite a few years back, had refused the cheque because it felt the offer price was too low. Attorney-general Milon Banerjee had also advised the government that it was not bound to sell the residual stake under Indian law.

Banerjee had said that the government had three options —negotiate the sale of the rump shares with Sterlite or any third party “based on market rate”, go for a public issue, or not sell the shares if it feels that it will be in the public interest.

Since then, Sterlite had made an offer to pay Rs 78 per Balco share to the government plus interest at the rate of 14 per cent per annum on this price from March 31, 2004. But the government had rejected this offer.

Source: The Telegraph