The government and the company managements should ensure proper sequencing of the IPOs.Â Bunching of the offers within a short time frame might dilute investor appetite, especially for those offerings that bring up the rear. Also important would be the proper pricing of the issues.
Sarbajeet K Sen
A clutch of five state-run insurers will soon be vying for investor attention but the success of the government’s stake sale plan will depend on how smartly the process is managed.
The Union Cabinet gave its nod on Wednesday to reduce the government’s stake by 25 percent in fully-owned national reinsurer, General Insurance Corporation of India (GIC Re), along with New India Insurance Co, Oriental Insurance Co, National Insurance Co and United India Assurance Co.
The reduction of Centre’s holding through public offer will no doubt be beneficial for the general insurers since it would ease the government’s grip on them somewhat and provide flexibility for them to raise further resources from the capital market.
It would be understandable if in the days to come the five companies vied with each other to emerge as the first to hit the market. However, the euphoria of being allowed to go public should be tempered with an assessment of ground realities.
The insurers should be mindful that the market might not have enough appetite for five mega issue of an identical kind within a short span. This, especially at a time when the equity market has been seeing a lull with indices moving in a small range.
The government and the company managements, therefore, should ensure proper sequencing of the five IPOs. Bunching of the offers within a short time frame might dilute investor appetite for those IPOs that bring up the rear.
Needless to say, pricing is key, especially because the general insurance companies have been somewhat opaque in their working so far and investors will need to be convinced that they are a good bet. Being listed is a good thing in this respect as the companies would have to comply with regulatory norms laid out by the Securities and Exchange Board of India (SEBI).
The companies should try and test the market’s appetite for general insurance stocks by reducing the government holding by a small percentage — around 10 percent — initially and come up with follow-on public offers (FPOs) at reasonable premium after some time if the issues find favour among investors and are traded in the secondary market at good valuations.
The government has said the divestment of stake to 75 percent will be in “one or more tranches over a period of time”. It has to ensure that the issues are property spaced out and attractively priced.Subscribe to Moneycontrol Pro and gain access to curated markets data, exclusive trading recommendations, independent equity analysis, actionable investment ideas, nuanced takes on macro, corporate and policy actions, practical insights from market gurus and much more.