All eyes set on Coal India IPO

There is a whisper in the market — will the Coal India Ltd (CIL) initial public offering (IPO) do to the secondary market in 2010 what the Reliance Power IPO did in 2008? The market backdrop of a Sensex level of 20,000 points plus seems to be providing a sense of déjà vu, too.

However, to my mind, no IPO, however large, can be the sole factor for a secondary market crash. In 2008, valuations were stretched and there was a sudden and somewhat unforeseen global meltdown to contend with.

Agreed, valuations in 2010 too, are not exactly comforting, but the global devil is now recognised. If the market were to correct or even crash in 2010, the IPO of CIL will certainly not be one of the major contributing factors.

To put matters in perspective, the small IPO of Career Point that sought to raise a mere Rs. 115 crore, received applications worth Rs. 5,000 crore. So, where is the debate about market depth? More importantly, CIL is a public sector undertaking ( PSU) behemoth, a ‘ Navratna’ with a solid asset base and a sound operational track record. Any comparison with Reliance Power, which was more a ‘ Power Point’ project then than any meaningful power project at the time of its public offer, is to my mind, a futile exercise.

CIL is the world’s largest coal reserve holder as well as coal producer. It operates 471 mines in 21 major coalfields across eight states in India, which includes open cast mines, underground mines and mixed mines.

While the fundamentals of the public sector company appear strong and retail investors with a long- term investment perspective can gain from participation in this IPO, the discount of a meagre five per cent for retail investors betrays a lack of vision on the part of the government and its investment bankers.

This is not to say that retail investors will not benefit from participation in this IPO. But with an ambitious PSU disinvestment plan, the government has again missed a golden opportunity to earn the goodwill of Indian retail investors, whose taxes finance the PSUs.

Ironically, there is a buzz that the government is considering allowing foreign retail participation in the Indian stock market.While that would be a positive move, the fact is, it is time to display some more care and respect for domestic retail investors.

And the Coal India IPO was the right time to get started.