BHEL Shares Drop as Government Launches Major Stake Sale

Shares of state-owned engineering giant Bharat Heavy Electricals Limited (BHEL) fell sharply in early trading on Wednesday. The stock dropped nearly 6% to an intraday low of Rs 259.3 on the Bombay Stock Exchange. This significant decline came as the Indian government launched a large Offer for Sale (OFS) to divest part of its holding in the company.

Details of the Government’s Divestment Offer

The government is selling up to a 5% stake in BHEL through this OFS. The sale aims to raise approximately Rs 4,422 crore for the national exchequer. The floor price for the share sale has been set at Rs 254 per share. This price represents a discount compared to the stock’s closing price of Rs 272.85 on Tuesday, just before the offer was announced.

The OFS opened for subscription on Wednesday, but initially only for non-retail investors. This category includes institutional buyers like mutual funds, insurance companies, and foreign portfolio investors. The offer will open for retail investors, or individual shareholders, on Thursday. The government has reserved a portion of the shares specifically for this retail segment.

Understanding the Offer for Sale Mechanism

An Offer for Sale is a common method used by governments and large promoters to sell shares in a listed company. Unlike an Initial Public Offering (IPO), no new shares are created. Instead, existing shares are sold by the promoter, in this case the Government of India, to public investors. The proceeds from the sale go directly to the seller, not to the company.

For investors, an OFS often provides an opportunity to buy shares of a well-known company, sometimes at a discounted price. The floor price acts as the minimum bid price. However, the market price often reacts to the increased supply of shares available for purchase, which can lead to short-term price pressure, as seen with BHEL.

Context and Market Reaction

Divestment of government stakes in public sector undertakings (PSUs) is a key part of the Indian government’s fiscal strategy. It aims to raise funds, improve corporate governance, and increase public participation in these firms. BHEL, a major player in power generation equipment and infrastructure, has been on the divestment list for some time.

The market’s negative reaction is typical when a large block of shares hits the market at a discount. The lower floor price sets a new benchmark, and traders often sell existing holdings ahead of the offer, anticipating the price to move toward the OFS level. The stock’s recovery from the day’s low will depend on the demand and subscription levels for the OFS, especially from institutional investors.

What This Means for Investors

For long-term investors, such stake sales can be a double-edged sword. On one hand, a successful OFS can improve the stock’s liquidity and broaden its shareholder base. On the other hand, it introduces near-term volatility. Retail investors interested in participating in the OFS on Thursday will be able to bid at or above the floor price.

The performance of BHEL’s business, including its order book from the power and industrial sectors, remains the fundamental driver for the stock beyond this one-time event. The government’s divestment move is a significant financial transaction that shifts a portion of ownership from the state to the public markets, marking another step in the evolution of India’s large public sector enterprises.