State-run NMDC Ltd said on Tuesday the government will disinvest 8.38 percent in the

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mining and minerals firm through a follow on public offer in the current financial year. No other details were provided.

The government is hoping to raise over Rs 23,000 crore from the disinvestment of National Mineral Development Corporation (NMDC). The follow-on offer for the PSU is likely to take place in March 2010, sources in the finance ministry told TOI.

The government has decided to adopt auction method for the sale of NMDC shares to FIIs, financial institutions and high networth individuals to optimise the price. However, retail investors will be kept out of the auction process and will be allotted the shares at the floor price, fixed before the auction. So if the auction price is much higher than the floor price, retail investors will still get their quota at the pre-decided floor price.

It is learnt that the disinvestment department has already assessed the potential of NMDC vis-a-vis some global mineral majors like Rio Tinto and it was found that the performance of the PSU is on par with its global peers.

The ministry has taken a cue from the recent divestment of DPSC (formerly Dishergar Power Supply), an associate company of Andrew Yule, where the price went up to Rs 710 per share through open bidding, although the floor price was Rs 325. The UPA government has so far mobilised Rs 4,200 crore via divestment in NHPC (Rs 2,016 crore) and Oil India (Rs 2,205 crore).

NMDC is the biggest iron ore mining company in the country and is also engaged in the production of diamond. The government owns 98.39% in the company.

The company, which is under the administrative control of the ministry of steel, will need more than Rs 14,000 crore over the next three years to fund its expansion plans.

This will be in addition to the Rs 12,000 crore which it has as cash surplus. NMDC has a paid-up capital (the amount of capital paid by shareholders in full) of Rs 132.16 crore.

Incidentally, only 6 crore shares (1.7%) of the company is listed on the stock exchanges. "There is no liquidity in the counter. Out of 6 crore listed shares, almost 5 crore are with financial institutions. Only 1 crore shares are with public and regularly traded. Lack of floating stock is a major impediment against the price discovery," sources said. Government is likely to offer 70% of 33 crore shares of NMDC through auction. The figure will be around 22 crore shares.