India’s largest initial public offering opens Monday

MUMBAI - State-run Coal India’s $3.5 billion dollar initial public offering (IPO), the biggest in the history of Corporate India, will open Monday at a price band of Rs.225-245 a share, setting the direction for the stock market this week.

The mega public float, experts believe, is expected to attract foreign investors and lead to a surge in dollar inflows, pushing the Indian rupee further up. It could cause a liquidity crunch for a short while and lead to correction in the secondary market.

“This IPO is creating a lot of excitement in the investor circles. However, there is a school-of-thought that there may be a liquidity squeeze due to this IPO, and which may cause the secondary market to correct,” said Jagannadham Thunuguntla, strategist and head of research, SMC Global Securities.

At the higher end of the band, the IPO size will be to the tune of about Rs 15,400 crore, making it the largest IPO in the history of Indian capital markets, he said.

The IPO offers 631, 636,440 shares at a face value of Rs.10 per share. The offer closes Oct 21 for retail and non-institutional bidders, while for large financial institutions it would end a day earlier.

The retail category for the IPO is to the tune of about Rs.4,600 crore.

Coal India is the world’s largest coal miner, producing over 80 percent of India’s coal through 471 mines across eight states. It produced 431.26 million tonnes of raw coal in 2009-10.

It also holds the largest extractable coal reserves in the world with over 22 billion tonnes, ahead of rivals state-run China Shenhua Energy and the world’s largest private miner Peabody Energy in the United States.

The mining behemoth posted a net profit of Rs.4,062.6 crore in the year ended March 31 and had a net worth of Rs.19,008 crore.

The Coal India initial issue is the largest since Reliance Power’s IPO of Rs.11,700 crore.

However, Indian IPO’s still remain small compared to global standards. Equity issues by Brazilian and Chinese companies in recent times have been of a mammoth size.

Brazil’s Petrobras created a new record in September with its inital public offering mopping up $70 billion, while the Agricultural Bank of China collected a whopping $22.12 billion through an equity offering in July.

The company is set to list on the stock exchange Nov 4.