NALCO share auction may be scaled back: sources

MUMBAI (Reuters) - The government is likely to scale back the size of the its planned auction of shares in National Aluminium Co Ltd (NALCO)(NALU.NS), two sources with direct knowledge of the matter said.

The government could also offer a hefty discount to the company's market price, because of the limited current float in the stock and the sluggish demand outlook for the metal, the sources said.

Earlier on Wednesday, a panel of ministers had approved selling a 12.15 percent stake in the aluminium producer through an auction on March 15.

The government, which holds 87.15 percent in the company, is likely to offer a 5 percent stake on Friday, with an option to sell 5 percent more, the sources said.

The shares are likely to be auctioned at a base price of 40 rupees each, a discount of about 13 percent to Wednesday's closing price of 46.10 rupees, they said. At that price, a 10 percent stake would be worth about $185 million.

In recent share auctions, the government had offered shares to investors at roughly 4 to 5 percent discounts.

Selling down its shareholdings in state companies is central to the government's plan to cut its fiscal deficit. It has raised about $4 billion through divestments so far this fiscal year and hopes to end the year close to its target of $5.1 billion.

(Reporting by Rajesh Kumar Singh and Sumeet Chatterjee; Writing by Prashant Mehra; Editing by Tony Munroe and David Holmes)