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Wednesday, August 12, 2020

Centre starts process to sell partial stake in LIC, approvals being lined up

The government will have to first amend the LIC Act before taking the Corporation public. The Department of Financial Services is working on the structuring, modalities and timing of the proposed IPO of LIC.

Written by Sunny Verma | New Delhi | Updated: February 28, 2020 5:17:21 am
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The Finance Ministry has not received any opposition to the proposal of listing Life Insurance Corporation of India (LIC) on the stock exchanges. The government is working on the modalities of LIC share sale, which will be carried out depending upon stability of markets, and an initial 5 per cent equity can be sold in the market, a senior government official said.

“We haven’t received any opposition in writing on LIC share sale. It is a complex exercise and the work has already started to seek necessary approvals for selling shares in the market,” the official said.

Sources said even after the listing of LIC, the government will continue to provide sovereign guarantee for all policies issued by the Corporation.

Explained: Why LIC divestment is a big, bold decision but will need a law change first

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 government’s stake in LIC, the country’s largest insurer, through an initial public offering (IPO).

The Centre also proposed to sell its equity in the stressed IDBI Bank to private, retail and institutional investors through the stock exchange.

“We are examining a number of legal issues post which a proposal will be taken to the Cabinet for its approval. Discussions are underway with the law department,” the official said.

Explained

IPO could bring transparency to LIC’s operations

The government is on course to sell a portion of its equity in LIC as it has not received any opposition to the proposal so far. While stake sale in the country’s largest and oldest life insurer will depend upon market conditions, the Finance Ministry has started work on finalising modalities and seeking necessary approvals. LIC’s initial public offering will be significant in bringing transparency in operations of the Corporation, while enabling the government to raise funds through disinvestment.

The government will have to first amend the LIC Act before taking the Corporation public. The Department of Financial Services is 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 the Corporation’s 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.

Share sale of LIC, which was set up in 1956, is expected to generate significant investor interest given its dominant position. 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 the insurer’s 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 financial year 2018-19, down 7.89 per cent from Rs 25,646 crore in the previous fiscal.

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 share sale in IDBI Bank is likely through the offer for sale route. Even though IDBI Bank is categorised as a private bank, sale of government stake could act as a test case for privatisation of state-owned banks,” the official said.

Apart from LIC and IDBI Bank stake sale, the government has also lined up privatisation of BPCL, Container Corporation of India, Shipping Corporation of India and Air India in the next financial year.

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