Shares in Life Insurance Corporation (LIC) and IDBI Bank — the two storied, state-owned institutions in the country’s financial sector — will be sold to the public.
The surprise announcement in the budget is critical to the financing of government expenditure this year.
Some market players expect the LIC stake sale to be the flotation of the decade while Bengal chief minister Mamata Banerjee expressed shock.
Finance minister Nirmala Sitharaman has set a divestment target of Rs 2.1 lakh crore — the highest ever. Of this, Rs 90,000 crore is expected to be raised from the sale of the government’s stake in LIC and IDBI.
The remaining Rs 1.2 lakh crore will come from the sale of stake in central public sector undertakings like Bharat Petroleum Corporation and Air India.
Sitharaman said the government would sell a part of its holding in LIC through an initial public offering (IPO) but did not say how much.
Some analysts believe that a successful flotation of the LIC shares would be critical to the revival of the primary market — matching the significance, if not the scale, of the Saudi Aramco issue on the Saudi stock exchange in December.
Market mavens said LIC could become the biggest listed firm by market capitalisation, toppling Reliance Industries Ltd, which is the most valued company with a market cap of Rs 8.76 lakh crore.
The government’s divestment plan floundered this year as it fell way short of its targeted Rs 1.05 lakh crore. The revised estimate slashed the divestment proceeds to Rs 65,000 crore for this fiscal year.
The announcement of an IPO in LIC came on a day Sitharaman announced a new personal income tax structure (optional) for which an individual will have to forego some exemptions. Some experts felt that this would hurt insurance companies that are struggling to increase their market penetration. The development could also affect the valuation of LIC.
According to Kajal Gandhi, analyst at ICICI Direct, LIC is likely to become the country’s biggest company by market capitalisation as it is the largest company in terms of assets under management (AUM).
“Being a government-owned entity it is likely to see valuation gap versus private players. At even 25-30 per cent of its AUM, the company can be valued at around Rs 8-10 trillion. Even a 10 per cent dilution will be difficult for the market to absorb in one go and the government may have to do this in lots,” Gandhi added.
Vijay Bhushan, president, Association of National Exchanges Members of India (ANMI), said the LIC flotation would end up as the IPO of the decade.
In her budget speech, Sitharaman announced the sale of the balance holding of the government in IDBI Bank to private, retail and institutional investors. The Centre currently holds 47.11 per cent, while LIC is the majority shareholder with a 51 per cent stake in IDBI Bank.
Sitharaman’s announcement of the Centre selling its residual stake in IDBI Bank saw shares of the lender spurting by 10 per cent to Rs 37.30. At the current market price, the stake sale will yield over Rs 18,000 crore to the government.
At a media conference later, the finance minister expressed confidence that the Centre would be able to meet the divestment target.
Tuhin Pandey, secretary in the department of investment and public asset management (DIPAM), said share sales in BPCL, Shipping Corporation of India (SCI) and Container Corporation of India (Concor) would be completed in the next fiscal. He added that after Air India, the government would release the document seeking expressions of interest (EoIs) in BPCL.