Mumbai: The government is planning to divest 10 per cent stake in Coal India Limited (CIL), reports quoting finance ministry sources said. The government is exploring the possibility of offloading 10 per cent stake in CIL through an initial public offer (IPO) of shares, the report said.

The funds raised through the disinvestment process would be used to fund CIL's modernisation plans, the reports added.

The government on Thursday had announced its plans to sell similar stakes in two other PSUs - National Aluminium Company (Nalco) and Neyveli Lignite Company (NLC).

While the finance ministry has asked CIL to proceed with the valuation process, CIL has started deliberations with the ministry on various issues related to disinvestment.

A 10 per cent sale of government equity in CIL is expected to bring in money to the extent of Rs7,000 crore.

CIL has an equity base of over 60 billion shares worth nearly Rs1,000 each. The company reported a profit before tax and dividend of Rs4,801.52 crore in 2004-05 and projected a PBT of Rs5,122.99 crore for 2005-06.

CIL also reported an increase in coal production. Total coal produced by CIL and the Singareni Collieries Company Limited (SCCL), a joint undertaking of the Centre and the government of Andhra Pradesh, during May 2006 rose 6.34 per cent to 31.07 million tonnes from 29.10 million tonnes during the same month last year.