It seems Life Insurance Corporation of India (LIC) is indeed the government’s most preferred saviour when its comes to bailing out share auction in this year’s divestment programme.
According to estimates, the insurance behemoth has invested nearly R1,000 crore in divestment offerings this year.
As per stock exchange disclosures on Wednesday, LIC purchased nearly 5.25 crore share worth R236 crore in the offer for sale (OFS) for Nalco. This accounts for around 35% of the total 15.69 crore share sold by the government during last week’s auction.
In November last year, LIC bought around 2.3 crore share of Hindustan Copper worth R350 crore. The government had planned to dilute 5.2 crore share in the state-owned copper mining and manufacturing company. LIC officials, however, declined to comment on queries related to investments in recent auctions.
While there is no denying the fact that LIC plays a huge role in bailing out government issues, merchant bankers add that other state-owned banks and insurance companies also play a supporting role in most government offerings.
While LIC has certainly made the going a lot easier for the government, there are some who feel that apart from reducing the fiscal deficit, the policy-makers should also look at ways for bringing in more depth in the capital market and encouraging retail investors to park their money.
According to , government’s divestment programme has become a primary tool to reduce fiscal deficit. However, stake sale in navratna companies should be viewed from bringing depth in India’s capital market and encouraging retail investors to park money.
?We need to have closed auctions where you do not need to disclose the floor price,” says Prithvi Haldea, CMD, Prime Database. “Each time the government decides to dilute its stake in a particular company, the stock price falls sharply. You cannot let market dictate the pricing terms. We have seen huge fluctuations in the prices and the government makes huge losses when the prices that are hammered between the date of announcement and the date of the issue,? he explains.
According to proxy advisory firm InGovern, shares of companies that are non-compliant with Securities and Exchange Board of India’s minimum public shareholding norms have witnessed significant drop in recent times.
As per its latest report, companies that held share auctions witnessed a drop between 10-50% in their respective stock price and have experienced volatility of around 10-30%, as against a drop of around 4% and volatility of around 6% in the overall index in the past three months.
Interestingly, before the government began its divestment programme in November last year, the Finance Ministry relaxed investment norms for LIC, which allowed the insurance company to invest up to 30% of a company’s paid-up capital, sharply up from the earlier 10%-limit.
