As part of its process of divestment and stake sale in entities it holds, the government made two announcements during the Union Budget — that it will sell part of its stake in the Life Insurance Corporation of India by listing it on stock exchanges, and that the government’s entire stake in IDBI Bank would be sold to private players.
This would be in line with the government’s divestment target of Rs 2.1 lakh crore for FY21. This on the back of planned listing of LIC and privatisation of Air India and BPCL. The target is around Rs 1 lakh crore more than the FY20 goal of Rs 1.05 lakh crore. The government has divestments worth Rs 18,094.59 crore this year, so far.
LIC is wholly-owned by the government. An IPO of LIC is a bold step for the government, which has been actively selling its stake in various entities to shore up its financial position. LIC’s IPO could also possibly be the country's biggest initial public offering in recent times. It will list LIC in the next financial year, which starts in April.
LIC is a big investor in share sales, including IPOs of state-run companies. It is India’s largest life insurer, and in 2018-19, its surplus increased 9.9% to Rs 532.14 billion. This was the first time that LIC's surplus crossed the 500-billion-rupee mark.
“Listing on the stock exchanges disciplines the company, provides access to financial markets and unlocks value. It also gives an opportunity to retail investors to take part in the wealth so created,” Finance Minister Nirmala Sitharaman said.
So far, this year's share sale has included two IPOs — Rail Vikas Nigam (Rs 475.89 crore) and IRCTC (Rs 637.97 crore) — an Offer-For-Sale by RITES Ltd amounting to Rs 730 crore, CPSE ETF worth Rs 10,000 crore and Bharat 22 ETF at Rs 4,368.80 crore. The government also sold enemy shares worth Rs 1,881.21 crore, as per the Department of Investment and Public Asset Management.
"LIC has been used as a sovereign fund to support market sentiments. With it's disinvestment, such direct involvement of the government in the market, will get truncated,” said Vishwas Panjiar, partner at Nangia Andersen, a consulting firm.
The reason that the divestment of LIC is a bold step is that the government has often used it to bail out companies during times of distress — such as IDBI Bank.
The government holds a 46.5% stake in IDBI Bank. In September 2019, LIC and the government together infused Rs 9,300 crore as equity capital into the bank and classified it as a private bank following LIC's acquisition.
After the announcement, shares of IDBI Bank surged over 12% to Rs 38.25, a gain of 4.20 per share. It was trading at Rs 38.30 per share at 2.17 pm on Saturday. State-owned LIC, which is the promoter of the debt-ridden lender with 51% stake, will pump in an additional Rs 4,743 crore to improve the bank's capital position.
LIC employees' unions on Saturday opposed the Centre's plan to sell a part of its shares in the state-run insurance behemoth through an IPO, insisting that the move is "against the national interest." The employees' unions of LIC across the country will stage nationwide protests if the government goes ahead with its plan.
With inputs from agencies