LIC IPO not solely for divestment but reforms
NEW DELHI: The initial public offering (IPO) of Life Insurance Corporation (LIC) of India should not be looked at from the viewpoint of meeting divestment target but rather as a precurser to ushering in reforms, a top official said.
“There is a need to correct the perception that we’re doing the IPO solely to meet the disinvestment target. That is not the case,” the official said, asking not to be named.
“From the beginning the aim has been to usher in reforms, the finance minister has also stressed on this,” the official said, indicating that the proceeds from the largest IPO ever could set the tone for future disinvestments or IPOs of other locked assets of the government that may derive high value.
This would also align with the government’s larger policy of moving out of non-strategic sectors completely while keeping a minimal presence in the identified strategic sectors of atomic energy, space, and defence transport and telecommunication power, petroleum, coal, and other minerals banking, insurance, and financial services.
Getting the LIC IPO in motion sends a strong signal to the market that the government means business, economists said.
“Disinvestment and asset sales are two big reforms that the government has been trying to push under hard conditions. More than setting the tone for future divestments, it will reflect government determination and boost sentiment at a time when the market is unsure on whether the government is holding back due to uncertain conditions,” said Madan Sabnavis, chief economist at Bank of Baroda.
All eyes will be on the IPO of the country’s largest insurer which is expected to take place in the first week of May. The LIC Board has agreed on diluting a 3.5% stake with an upper limit of 5%, amid headwinds from volatile stock markets and investor interest, Mint reported on Saturday.
The government is seeking to garner between ₹21,000-30,000 crore from the sale, at a valuation of ₹6 lakh crore. Reservations, discounts and issue price will be ascertained by Wednesday morning.
The largest IPO to come to the Indian stock markets will therefore take place well before its deadline of May 12 after which it will have to refile the DRHP with March quarter results.
The success of LIC’s IPO will determine whether the government is able to meet its asset sales goal, which has been cut to a modest ₹65,000 crore target for the current fiscal, lower than the revised ₹78,000 crore for the previous fiscal.
The government could meet less than 17% of the revised asset sales target for FY22 as the Russian invasion of Ukraine, and the ensuing volatility in stock markets forced it to postpone the LIC share sale to this fiscal year.
Mint reported earlier this week that the country’s largest insurer put up a stellar performance with first-year premium collection, a key metric, rose 7.9% to ₹1.98 lakh crore for the year ended March 31, with a market share of 63.25%.