'Long way to go before LIC stake sale'

Long way to go before LIC stake sale, says divestment secretary

Though Finance Minister Nirmala Sitharaman has assured that the state will keep protecting their interest, experts say it will not be that easy once the firm goes public

The Budget announcement about the part sale of India’s financial behemoth Life Insurance Corporation (LIC) may have made headlines, but it is still in the conceptual stage and there are legal hurdles to cross before testing the market.

Set up under the LIC Act of 1956, the insurance giant, with an asset size of over Rs 31 lakh crore, is a statutory corporation owned by the government and may need to be converted into an independent commercial company before getting ready for a public issue.

Also, the life insurer has about 30 crore policy holders who enjoy a sovereign guarantee on policy benefits — the sum assured with bonus in all policies. The issue of continuance of state guarantee to policy holders may also occur if a part is being privatised.

“There is a lot of difference between Budget announcements and action plan. Many a time, political decisions have to be taken first. Can Budget decisions determine business plans?” said Disinvestment Secretary Tuhin Kanta Pandey when asked about the details of the public offer the Centre is planning to make in the company.

He, however, said it was a big-ticket stake sale which, if successful, could take care of the entire Rs 2.10 lakh crore of the government’s disinvestment plan in the next financial year. Once listed, it would also be India’s biggest company by market capitalisation.

Besides, the company going public is good for its policyholders as it will ensure better governance, more disclosures, accountability and a high degree of transparency.

Cabinet approval

“We are yet to work on the timeline for the disinvestment of the company of such a magnitude and the whole process may take about one year,” he said. The Cabinet will give its approval. It will also depend on market conditions.

The life insurer, whose total paid-up capital stood at Rs 100 crore in March 2019, is regulated by the Insurance Development and Regulatory Authority of India.

Pandey said the other big-ticket disinvestments — such as the Bharat Petroleum Corporation Ltd (BPCL), Shipping Corporation of India and the Container Corporation of India — which were cleared in November last year, are expected to be achieved by early next financial year.

Air India, he said, has generated good interest among investors and that is also expected to be through by the middle of this year.

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