07-Dec-2023
2 mins read
The Indian government has made a significant move to divest an 8% stake in IRCON International Ltd via an Offer for Sale (OFS). Scheduled to take place over Thursday and Friday, this divestment entails the sale of up to 8% of the government’s stake in the engineering and construction company.
Government’s Intent and Disinvestment Strategy
The government, holding a 73.18% stake in IRCON, seeks to raise over Rs 1,200 crore through this 8% stake divestment. With a divestment target of Rs 51,000 crore for the fiscal year, the government’s strategy involves offloading shares in various public sector units, including Coal India, Hindustan Aeronautics Ltd, HUDCO, Rail Vikas Nigam, and SJVN.
OFS Structure and Allocation
The base issue size of the OFS is set at 4%, totalling over 3,76,20,629 equity shares, with a provision for a green-shoe option to retain an oversubscription of 4%, totalling 3,76,20,629 shares. This makes the total issue size 8% or over 7,52,41,258 shares. Interestingly, 10% of the offer is reserved for retail investors, with provisions to reallocate undersubscribed shares to non-retail investors.
Retail and Employee Participation
In the event of an undersubscribed retail category, non-retail investors with unallotted bids on T Day will have the opportunity to carry forward their bids to T+1 Day for potential allocation from the unsubscribed portion of the retail category. Additionally, 0.5% of the offer size is allocated for employees, allowing them to apply for equity shares up to Rs 2,00,000, with proportional allotment in case of undersubscription.
Brokers and Market Facilitation
IDBI Capital Markets, BoB Capital Markets, and YES Securities are the appointed brokers for the proposed OFS, responsible for facilitating the stake sale in IRCON.
Floor Price and Market Response
The floor price for this offer stands at Rs 154 per equity share, as disclosed by IRCON in a regulatory filing. However, the market’s initial reaction led to a decline in IRCON’s stock by up to 8%, with the scrip hitting a low of Rs 157.55 on the NSE. Despite closing at Rs 172, down 0.81% on the NSE, the floor price of Rs 154 represents a 10% discount from the preceding day’s closing price, causing a stir in market sentiment.
IRCON International Company Profile
IRCON International Ltd, known for its specialisation in transport infrastructure, stands as an engineering and construction corporation. With the government’s majority stake and pivotal role in transportation infrastructure development, the 8% stake sale marks a significant financial manoeuvre in line with the government’s broader disinvestment goals.
In summary, as the government continues its push for disinvestment, the sale of an 8% stake in IRCON via OFS is a strategic move. The floor price, discounted from the market closing price, aims to attract investors while offering opportunities for retail and employee participation, creating a nuanced investment landscape for stakeholders.