Finance Minister Nirmala Sitharaman with MoS Anurag Thakur outside Ministry of Finance. (Express photo: Praveen Khanna)
The Budget 2020-21 announced an ambitious disinvestment agenda, aiming to raise Rs 2.1 lakh crore through stake sales next year, including plans to sell part of the Centre’s stake in the country’s largest insurer Life Insurance Corporation (LIC) through an initial public offer (IPO).
Finance Minister Nirmala Sitharaman also proposed to sell the government’s equity in the stressed IDBI Bank to private, retail and institutional investors through the stock exchange. This led to a 11.09 per cent jump in the lender’s stock price at close on the National Stock Exchange in an otherwise weak market.
The government is expecting to raise Rs 90,000 crore through stake sale in LIC and IDBI Bank, and another Rs 1.2 lakh crore through other disinvestment. With plans afoot for privatisation of BPCL, Container Corporation of India, Shipping Corporation of India and Air India, the next year is going to see the government sell its equity in several state-owned companies at an unprecedented scale.
The government currently owns 100 per cent stake in LIC and 47.11 per cent equity in IDBI Bank, which is majority-owned by LIC with 51 per cent equity in the stressed lender. The government’s equity in IDBI Bank is currently valued at Rs 18,324 crore based on Saturday’s closing price. The value of the government’s equity in IDBI Bank surged by Rs 1833 crore in a single day on announcement of the plan to sell its stake in the bank.
In the last six years, the government has missed disinvestment collection targets thrice and exceeded it thrice. The biggest shortfall in disinvestment receipts is estimated this year, as the target has been revised down to Rs 65,000 crore in RE (revised estimates) from Rs 1.05 lakh crore in BE (budget estimates).
For three years between 2016-17 and 2018-19, the government exceeded the BE targets for disinvestment. In 2015-16, the government collected Rs 23,997 crore through disinvestment as against BE of Rs 25,313 crore. The shortfall in 2014-15 was around Rs 2,000 crore from BE of Rs 26,353 crore.
As for LIC, the government will have to first amend the LIC Act before taking the Corporation public. The Finance Ministry has started discussions with the Law Ministry to finalise required legal changes for the listing of LIC. The Department of Financial Services, sources said, will be working on the structuring, modalities and timing of the proposed IPO of LIC.
LIC is currently governed by the LIC Act of 1956 which enables the state-owned insurer to obtain a special dispensation in several areas, including higher stakes in companies beyond the limit set by the insurance sector regulator. Listing of LIC shares on the market is expected to lead to more disclosures of investment and loan portfolios of the Corporation as well as better corporate governance.
“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,” Sitharaman said while announcing plans for the LIC IPO.
The government had earlier listed the shares of General Insurance Corporation and New India Assurance through IPOs three years ago. Finance Ministry sources said the government expects these big-ticket disinvestments to be completed in the next financial year, providing the Centre with fiscal cushion amid the slack in tax revenues.
Share sale of LIC, which was set up in 1956, is expected to generate significant investor interest given its dominant position. The LIC had 66.24 per cent market share in total first-year premium and 74.71 per cent share in new policies in 2018-19, as per its latest available Annual Report.
The insurer’s total assets had touched an all-time high of Rs 31.11 lakh crore in 2018-19, an increase of 9.4 per cent. The Corporation realised a profit of Rs 23,621 crore from its equity investment during 2018-19, down 7.89 per cent from Rs 25,646 crore in the previous year.