The Union Cabinet on Thursday approved the big ticket disinvestment in Steel Authority of India Ltd. (SAIL) to mop up about Rs.16,000 crore by selling its equity and issuing fresh shares to the public.

SAIL will be first state-owned company to hit the capital market this fiscal as part of the government's ambitious disinvestment programme to raise the targeted Rs.40,000 crore.

As part of the proposal, which was approved by the Cabinet Committee on Economic Affairs (CCEA), SAIL will raise an additional 10 per cent of the paid-up equity and the government, on its part, will disinvest 10 per cent of its holding.

“This will be done in two tranches. In each tranche, there will a 5 per cent FPO (follow on public offer) and 5 per cent sale of the government equity,'' Home Minister P. Chidambaram told reporters here after the CCEA meeting.

At current prices, it is expected that SAIL will get an additional capital of Rs.8,000 crore, while the government will also get Rs.8,000 crore, he added.

“The net result will be, after both tranches are completed, the government's shareholding will be about 69 per cent. Public shareholding will be 31 per cent,'' Mr. Chidambaram said. As of now, public shareholding in SAIL is 14.2 per cent.

The proceeds from fresh issues of equity by SAIL will help in filling the resource gap for funding the steel Navratna's capital expenditure emerging from increased pressure on steel prices and diminished margins. SAIL is now undertaking a Rs.70,000-crore expansion programme to raise its installed production capacity from 13.82 million tonnes to 23.46 million tonnes annually.

The disinvestment is in line with the government policy, sharing ownership of CPSEs with the public, while also raising funds to finance its different social programmes.