LIC stake sale: Govt may weigh dilution of up to 10% stake via LIC IPO

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Updated: February 3, 2020 7:57:38 AM

Budget 2020 India: LIC is the country's largest insurer that controls over 70% of the market share.

Budget 2020 India, Budget 2020-21Budget 2020-21: Of the total disinvestment target of Rs 2.10 lakh crore, the government aims to raise Rs 90,000 crore from the listing of LIC and its stake dilution in IDBI Bank in the next fiscal.

Budget 2020 India: If the Budget FY21 revenue targets appear daunting during the course of the year, the government could exercise the option of overachieving its already high disinvestment target of Rs 2.1 lakh crore for the fiscal by offloading up to 10% stake in LIC, official sources indicated.

With an enterprise value of Rs 36 lakh crore, a 10% IPO by the state-run insurer could alone enable the government to surpass the disinvestment target by a wide margin.

The current rule stipulates that a minimum of a 10% stake of the promoter has to be offloaded upon listing, although the government could seek an exemption from this rule to dilute less in LIC, should it discover that it would be too big for the market to absorb in one go, said the source.

However, when asked about the quantum of the government’s stake dilution in LIC, finance secretary Rajiv Kumar told FE that an inter-ministerial board will soon take a final call on this issue. But it was likely that the listing could happen in the second half of the next fiscal, as several procedures — including hiring a consultant for this exercise, firming up exact valuation of the insurer, etc —would have to be wrapped up before that, he added.

Of the total disinvestment target of Rs 2.10 lakh crore, the government aims to raise Rs 90,000 crore from the listing of LIC and its stake dilution in IDBI Bank in the next fiscal. But in case its other disinvestment plans (like Air India sell-off or even IDBI stake sale) don’t materialise, it can always fall back on LIC to raise the desired amount, said the source quoted earlier.

The government has set a record disinvestment target of Rs 2.1 lakh crore for FY21, against just Rs 65,000 crore this year. Even its FY21 gross tax revenue growth target of 12% is viewed as optimistic, given that the nominal GDP expansion is pegged at just 10%.

The Life Insurance Corporation Act will have to be amended to facilitate its listing, the finance secretary said. The inter-ministerial board will comprise at least the members of the departments of investment and public asset management, financial services and law, he said.

Commenting on IDBI Bank, Kumar made it clear that while the government would like to sell its entire residual stake in that (46.5%), it won’t ask LIC to sell its shares in the debt-laden bank. Any such decision will be made by LIC, he added.

Separately, finance minister Nirmala Sitharaman suggested that even after the proposed listing, LIC will still remain a public-sector company and its policy holders need not fear for any loss of implicit sovereign guarantee on its products.

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The finance secretary said the listing of LIC will bring in greater transparency as well as public participation; it will also deepen the equity market.

“Listing of companies on stock exchanges disciplines a company and provides access to financial markets and unlocks its value. It also gives opportunity for retail investors to participate in the wealth so created. The government now proposes to sell a part of its holding in LIC by way of Initial Public Offer (IPO),” the finance minister had said in her Budget speech.

LIC is the country’s largest insurer that controls over 70% of the market share. It has a market share of 76.28% in number of policies and 71% in first-year premiums. It’s also the promoter of IDBI Bank, having acquired a controlling stake from the government.

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