Coal India IPO to be priced at a Sharp Discount to Comparable Global Coal Plays sees Huge Investor Demand

Coal India Limited (CIL) is the biggest IPO in the history  of the Indian markets.The Company has generated a lot of investor interest because of a number of firsts.It is the largest coal producer in the world in one of the biggest demand growth regions.The company has excellent fundamentals being rated 5/5 by the rating agency.The government has disallowed anchor investors for the IPO as it finds that allocation could be construed as biased.Note Anchor Investors in Indian IPOs are favored investor who are preallocated a fixed amount of shares by investment bankers.This is similar to the US practice where all of the IPO is offered to institutional investors by investment bankers solely on their discretion.India is much more egalitarian in its approach to IPO regulation with a fixed amount 35% reserved for retail investors .The pricing of the issue has been a hot topic of speculation with the expected price range to give it a multiple of around 15x which is around 20-30% cheaper than comparable large US and China coal companies like Massey,Shenhua and others.

The CIL IPO has been preceded by a huge number of IPOs in the month of September in the Indian markets.While some of the issues have been good,most are junk issues by fly by night operators.Some of the IPOs are already giving huge losses to investors.The IPOs have been made as the market expects a huge amount of liquidity to be sucked out by the $3.5 billion to be raised by CIL.

CIL may price IPO below global peers – FE

Less than a week to go before the empowered group of ministers (eGoM) take a final decision on the price band for the Coal India IPO, speculation is rife that it would be priced at a 20-30% discount to its global peers. Its IPO price band, is expected to be anywhere between Rs 220 and Rs 270.

Among Coal India’s global peers are China Shenhua, china’s largest coal producer, with a market capitalisation of $ 73 billion and Peabody Energy Corp, US’s largest coal producer. Global coal producers are currently quoting at a price to earning (PE) multiple of 17-24 times, as per bloomberg data.As per expected price band of Rs 220 and 270, Coal India’s PE ratio works out anywhere between 14 and 17 times on an earnings per share (EPS) of Rs 15.6 for 2009-10. This works out to a maximum of 30% discount to be offered to average global multiples of 20.

Coal India may scrap anchor investor placement – DH

The government expects to raise up to Rs 12,000-15,000 crore through Coal India IPO, billed as the country’s largest ever.The Empowered Group of Ministers working on the initial public (IPO) offering would meet by September-end to decide on the anchor investor issue and on October 12 on the price band of the shares being offered, sources told PTI.

“We believe demand for placement for anchor investors will exceed the quota limit. We may have to be discretionary about whom to choose. This is something which the government is not comfortable with as the process of selection of such investors may not be transparent,” the sources said.