LIC IPO leads govt stake sale in FY21:
The divestment target for FY21 has been set at ~2.1 trn, which includes ~90,000 cr from PSBS and financial institutions
After drawing a blank on strategic sales so far in the current fiscal year, the Union government is banking on a massive increase in disinvestment proceeds next fiscal year.
A major highlight would, however, be sale of minority share in Life Insurance Corporation (LIC) through an initial public offer.
The disinvestment target for 2020-21 has been set at ~2.1 trillion, which includes ~90,000 crore from public sector banks and financial institutions. Besides LIC, the government is looking to sell its remaining stake in IDBI Bank.
“The ~90,000 crore for financial sector disinvestment will come from LIC and IDBI Bank. The valuation will be decided at the time of listing ,” Rajiv Kumar, finance secretary, said at the post-budget press conference.
In her Budget speech, Union Finance Minister Nirmala Sitharaman said: “Listing of companies on stock exchanges discipline 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 IPO.”
The next year’s target is the highest ever after the government was able to touch ~1 trillion in 2017-18.
The ambitious overall target for next year would, however, be more than three times the revised estimate for 2019-20.
The government expects to close the year with ~65,000 crore disinvestment proceeds against the budgetary target of ~1.05 trillion.
Some of the major strategic sales lined up for this year will spill over into the next year.
According to the website of Department of Investment and Public Asset Management (DIPAM), the government has so far earned only ~18,094.59 crore this year from stake sale in PSUS. This includes initial public offers from Rail Vikas Nigam and Indian Railway Catering and Tourism Corporation. Another ~21,000 crore has been raised through Bharat ETF in the past few days.
Since Sitharaman in her Budget Estimates is looking to get ~65,000 crore through disinvestment by March 2020, it is expected that at least one big PSU would be sold to a strategic investor within this year.
This would break almost 17-year lull in the strategic sales of government companies.
Disinvestment secretary Tuhin Pandey said: “Bharat Petroleum Corporation (BPCL), Container Corporation of India (Concor), Shipping Corporation of India and North Eastern Electric Power Corporation Limited (Neepco) we will conclude this year and some of the bigger ones will spill over to the next year.”
In November, the government approved strategic sales of five PSUS of which Tehri Hydro Development Corporation India and Neepco are to be bought by another PSU, NTPC.
The other three BPCL, Concor and SCI are to be privatised.
The NDA government had been trying to privatise 20 companies, a decision for which was taken in 2017, and included national carrier Air India.
The expression of interest for Air India has been floated for the second time last week on more attractive terms after the first EOI got no response.
“We have lined up several transactions for disinvestment. Air India EOI is out, a same for BPCL will be out soon,” said Pandey.
According to L Viswanathan, partner, Cyril Amarchand Mangaldas, the stake sale of IDBI and LIC and the proposed listing of LIC demonstrate the intent to take courageous measures and will enable disclosures of investment and loan portfolios and better governance, with greater transparency and accountability.
“It will also improve the fiscal position of the government and funds can be channelled for developmental activities.”