Record Coal India share sale boosts privatisation drive

By Sumeet Chatterjee and Himank Sharma

MUMBAI (Reuters) - India has raised about $3.6 billion by selling a 10 percent stake in state-run Coal India Ltd in the largest ever equity deal in the local market, giving a welcome boost to the government's faltering divestment drive.

The share sale will move the government closer to the still distant target of raising $10 billion by selling minority stakes in state-owned companies to trim the fiscal deficit to a seven-year low by the end of March.

Until now, the government had raised barely $300 million.

The strong investor response to the Coal India issue is expected to bolster New Delhi's plans to offload shares in other state firms including Oil and Natural Gas Corp and Power Finance Corp Ltd.

Overseas and local portfolio investor demand for Coal India shares exceeded supply, in a vote of confidence in recovery in Asia's third-largest economy, and in its growing demand for energy as industrial production increases.

"It's the world's largest coal miner operating in a coal-hungry nation, what's not to like?" said a fund manager at one existing UK-based institutional shareholder, who said he had bid for more stock on Friday.

"The new government has shown it is absolutely and fully committed to cleaning up the operational mess that these state-run corporations have been in. That makes us comfortable."

Coal India, the largest coal miner in the world, is the biggest supplier of coal domestically, sheltering it to a degree from tumbling global prices, as it feeds India's power stations. Coal fuels 60 percent of India's power production.

But the group, nationalised in the early 1970s and only listed in 2010, is also a sprawling, inefficient behemoth, consistently missing production targets and often grappling with strikes by workers over pay and fears about job cuts.

India is the world's third-largest coal importer even though it sits on the fifth-largest reserves.

Investors, retail as well as portfolio, bid for more than 675 million shares of Coal India versus the issue size of about 632 million, Bombay Stock Exchange data showed. The institutional portion was oversubscribed 1.2 times.

Foreign investors including Capital World Investors and BlackRock bid for nearly a quarter of the total shares on offer, while state-run Life Insurance Corp of India was the biggest single bidder, said people directly involved in the deal.

A spokesman for Capital World in London declined to comment and BlackRock could not immediately be reached.

"The response is indicative of investor confidence as well as appetite for quality issues from India," said Navneet Munot, chief investment officer of SBI Funds Management.

(Writing by Clara Ferreira Marques; Additional reporting by Rajesh Kumar Singh in NEW DELHI and Devidutta Tripathy in MUMBAI; Editing by Keith Weir)