Indian Prime Minister Narendra Modi’s government surprised investors by saying that it would sell part of its stake in state-run behemoth Life Insurance Corp (LIC) of India to meet its record asset-sale target.
Investors likened the proposal to Saudi Aramco, which in December last year raised about US$25 billion in the world’s biggest-ever initial public offering (IPO), and overtook Microsoft Corp and Apple Inc as the most valuable listed company.
India aims to sell the stake in the year starting April 1, Indian Department of Investment and Public Asset Management Secretary Tuhin Kanta Pandey said in an interview.
The “LIC IPO is akin to the Saudi Aramco listing for our capital markets,” said Vijay Bhushan, president of the Association of National Exchanges Members of India. “It will be IPO of the decade.”
Now comes the hard part. LIC, whose total assets of 31 trillion rupees (US$433.57 billion) exceed that of all Indian mutual funds combined, was set up under a special act in 1956. The government would have to amend the law, a process that could delay the sale beyond March next year and keep it from meeting its record divestment target of 2.1 trillion rupees.
LIC’s sheer size also makes it hard for the government to sell a big chunk of its holding. Nervousness was palpable on Saturday as shares of private insurers — SBI Life Insurance, General Insurance Corp of India, HDFC Life Insurance Co and ICICI Prudential Life Insurance Co — slumped 6 to 14 percent in a special trading session after the proposal was announced.
“It will become India’s biggest company by market value the day of the listing, given it is the largest company by assets under management,” said Kajal Gandhi, an analyst at ICICI Securities Ltd in Mumbai. “Even a 10 percent dilution will be difficult for the market to absorb it in one go.”
The sale could fetch the government 850 billion rupees to 900 billion rupees if the IPO is done this year, Credit Suisse analysts led by Neelkanth Mishra wrote in a note.
Insurance stocks have been star performers in recent years. SBI Life was among four insurers whose IPOs raised more than US$1 billion in 2017, data compiled by Bloomberg showed.
LIC has in the past been used as an investor of last resort to support the markets by buying shares of state-run companies.
It owns double-digit stakes in several publicly traded firms, including Bharat Heavy Electricals Ltd and Larsen & Toubro Ltd, that are collectively worth more than US$80 billion, data compiled by Bloomberg showed.
Last year, the insurer bailed out IDBI Bank by buying a 51 percent stake in it.
The proposal is already facing opposition from the insurer’s staff, the Press Trust of India reported, citing the spokesman of an employees’ union, who said that the sale is “against national interest.”
However, taking LIC public would help instill “discipline” and help unlock value, Indian Minister of Finance and Corporate Affairs Nirmala Sitharaman said in her budget speech, without providing details or a timeline for the sale.
“It is good for India and the market as well, because once this listing happens there will be greater transparency as far as LIC’s affairs are concerned,” said Joseph Thomas, head of research at Emkay Wealth Management. “Insurance and LIC have been synonymous in our common parlance.”
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