Investors in the Hindustan Copper auction issue are already staring at a loss. The price fell below the government-set auction floor price of Rs 155 on Tuesday.
The issue had been subscribed largely by public sector banks and insurance companies, at an average of Rs 156.56. The share price closed on Tuesday at Rs 153 on the stock exchanges.
Hindustan Copper, the government's first disinvestment issue in this financial year, had managed to sail through mainly on support from Life Insurance Corporation (LIC), State Bank of India and Punjab National Bank.
The offer for sale ( OFS) saw subdued response from large foreign institutional investors and private domestic investors such as mutual funds, although it was done at a 41 per cent discount to the market price. The share sale has yielded the government Rs 800 crore.
This is the second divestment issue of 2012 where investors have suffered a loss. In March, the share price of Oil and Natural Gas Corporation (ONGC) had seen a sharp fall on the very next day of the auction.
The biggest loser was LIC, as it had put in around Rs 12,000 crore to rescue the issue, which had few takers. The average price at which the government sold ONGC shares was Rs 303; the auction floor price was Rs 290. These currently trade at Rs 249.
Both the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) have revised the circuit limits lower for Hindustan Copper, from 20 per cent to 10 per cent.
The price has seen a sharp fall in the past three trading sessions. It had touched a high of Rs 276 last week but started falling sharply after the government announced a floor price for the auction on November 22.
A minimum of four per cent stake (37,008,720 shares) was offered for sale, with an option to sell 5.59 per cent (51,714,580 shares) more. Bids were received for 51,611,858 shares.
At Rs 155, Hindustan Copper trades at 47 times its trailing four-quarter earnings per share, possibly expensive by global standards. Copper prices are down a little over six per cent since October. Hindustan Copper's first half results saw net profit fall 13 per cent, even while its revenue rose 10.8 per cent, to Rs 596.4 crore.