It’s part of plan to raise Rs 2.1L crore through divestment
On the lines of Saudi Arabia’s Aramco that had the largest public offering in world’s history, the Modi Government has decided to list the Life Insurance Corporation (LIC) through the Initial Public Offer (IPO) route to mobilise non-tax revenue to meet the fiscal challenges.
This could be a blockbuster listing considering that LIC’s estimated valuation is of over Rs 36 lakh crore. Saudi Aramco, which is currently valued at $117.82 billion, was listed on Saudi Stock Exchange in December last year.
Established in 1956, LIC is fully-owned by the Central Government and has the highest market share in the life insurance segment in the country. According to Union Budget documents, for year 2020-21, disinvestment receipts are budgeted at Rs 2.1 lakh crore which is inclusive of Rs 90,000 crore from sale of Public Sector Banks and other Financial Institutions.
Industries have hailed the Government’s move while political parties including TMC chief Mamata Banerjee lambasted the Government decision to this effect.
Presenting the Budget 2020-21, Union Finance Minister Nirmala Sitharaman on Saturday announced selling of part Government stake in insurance behemoth Life Insurance Corporation (LIC), beside selling the balance holding of the Government in IDBI Bank to private, retail and institutional investors. “In the last few years, the Government has taken concrete steps to bring our banking system to be robust. However, there is a need for greater private capital. Accordingly, it is proposed to sell the balance holding of Government of India in IDBI Bank to private, retail and institutional investors through the stock exchange,” she said in her Budget Speech.
She further said that the listing brings in more financial discipline among the entities.
In 2021-22 and 2022-23, disinvestment receipts are expected to be up. The Government failed to meet the target for the current fiscal of Rs 1.05 lakh crore. In the current financial year so far, the Government has mopped up about Rs 18,000 crore by way of disinvestment. The Revised Estimate pegs disinvestment proceeds at Rs 65,000 crore for this fiscal ending March 2020.
Criticising the Government move, West Bengal Chief Minister Mamata Banerjee lashed out at the Centre over the Union Budget 2020 saying she is “appalled” at the Government’s proposal to sell shares of public institutions and termed it the “end of the sense of security”. “I am shocked and appalled to see how the Central Government plans to ambush the heritage & legacy of public institutions. It’s the end of a sense of security. Is it also the end of an era?” the Chief Minister tweeted, hours after Sitharaman concluded her longest Budget speech in Parliament. LIC employees’ unions has opposed the Centre’s plan to sell a part of its shares in the state-run insurance behemoth through an initial public offer (IPO), insisting that the move is “against the national interest”. The employees’ unions across the country will stage nationwide protests if the Government goes ahead with its plan.
Hailing the Government move, Kajal Gandhi, Analyst, ICICI Direct said that LIC is likely to become the country’s biggest company by market capitalisation on the day of the listing given that it is the largest company in terms of assets under management (AUM). Vijay Bhushan, President, Association of National Exchanges Members of India (ANMI) also appreciated the Government decision.
The Government currently holds 47.11 per cent, while LIC is the majority shareholder holding 51 per cent stake in IDBI Bank.
In August last year, the Cabinet approved selling the Government’s controlling stake in IDBI Bank to LIC, which is currently 100 per cent Government-owned.
The Modi Government has also planned to sale Air India.
In the financial year 2016-17, the Government had missed the budgeted disinvestment target. While the Budget had pegged target at Rs 56,500 crore, the Government was able to mop up Rs 46,247 crore.
In 2019-20, after a gap of 2 years, the Government has missed the disinvestment target set in Budget.
In 2017-18, it bettered the target of Rs 1 lakh crore and raised a record Rs 1,00,056 crore. In 2018-19, the disinvestment mop-up stood at Rs 84,972 crore as against the Budget target of Rs 80,000 crore.