FE Editorial : Insuring disinvestment

The good thing, of course, is that the government has finally accepted issues need to be properly discounted if they are to be sold. At least two planned disinvestments were put on hold with the merchant banker-advised price below, in some cases, even the book value. Senior ministers have opposed selling shares of PSUs under their charge at such prices, arguing speciously that it could invite the ire of the CVC or even the CAG. This lesson is important since, if issues are not hugely discounted, LIC may end up bailing out all future issues. While LIC wrote out a cheque of R4,000 crore when NTPC was being disinvested in February 2010, in March it bought 40 crore of 43 crore of ONGC’s shares being offered for disinvestment—while it bought the shares at R304, ONGC’s stock has stayed below that level since then. Though LIC buying more shares of public sector enterprises being disinvested will help the crisis-struck budget, insurance-holders of LIC’s policies may have a thing or two to say about this—even if you don’t look at issues like ONGC where LIC is out of money, over the last decade, the NSE’s PSU index has tripled while the overall Nifty grew 7 times. That is, LIC’s policy-holders are paying a price for the support LIC is giving in insuring the disinvestment process.