Example of the “overwhelming response” to the Rs 9,375 crore Zomato IPO showed that public market investors can “absorb large share sales” and the Centre would “like to strike a balance between achieving divestment and giving space to private firms" (Image Source: Shutterstock)
The government is likely to sell 10 percent of its stake in the Life Insurance Corporation of India (LIC) in two stages, with the first chunk being 5-6 percent and the second of the remainder, Mint reported.
The two-stage stake sale is keeping in mind the “mammoth size of the initial public offering (IPO)” and its possible impact on the market, sources told the paper.
Moneycontrol could not independently verify the report.
The estimated value of LIC is around Rs 12-15 lakh crore, which would place a 10 percent stake sale at Rs 1.2-1.5 lakh crore – a size that could “crowd out private insurance companies from the equity market, hampering economic growth”, one source said.
Another official added that a final call on the size of the LIC IPO will depend on its “impact on the economy as a whole”. They added that the offer was likely in Q3-end or Q4 this financial year.
A third source said divesting the stake gradually will allow the government to “command a premium in every follow-up” while meeting its divestment targets.
Examples of the “overwhelming response” to the Rs 9,375 crore Zomato IPO showed that public market investors can “absorb large share sales” and the Centre would “like to strike a balance between achieving divestment and giving space to private firms”, sources noted.
While offer size is not officially known, the 10 percent stake sale is expected as the Securities and Exchange Board of India (SEBI) rules mandate at least 10 percent public holding for companies sized Rs 1 lakh crore and more in two years and 25 percent in five years.
Notably, the LIC IPO is “crucial” for the Centre to meet its divestment target for FY22.
Finance Minister Nirmala Sitharaman, in her Union Budget
2021 speech, said the government had set a divestment target of Rs 1.75 lakh crore for the fiscal, of which the majority was expected to be met through stake sale in public sector companies. So far, only Rs 7,645.70 crore of this target has been met.