‘Once LIC goes public, market will watch actions’

When the government announced the ambitious target of mopping up Rs 2.1 lakh crore in disinvestment proceedings in 2020-21, it had lined up the LIC for partial sale through an IPO as the big gambit that would help it easily reach the target. India’s largest life insurer, with a market share of over 70%, when listed, is also expected to improve transparency and disclosure standards for the entire industry. But taking the LIC to an IPO will not be easy. In an interview with DH’s Annapurna Singh, Madan Sabnavis, the Chief Economist at Care Ratings, explains the good and bad of the proposed IPO, already being dubbed the “mother of all IPOs in India.”

What are the legalities involved in LIC disinvestment?

The legalities must have been addressed by the government before making this announcement. There will be certain processes that need to be followed, converting LIC into a company, which then gets under the umbrella of the Companies Act. But, to my mind, this will all be procedural.

Will LIC need to be corporatised before taking it public?

Yes, it will have to be, and subsequently, after the IPO, it will have to make all disclosures as other companies do. Quite clearly all the inputs that go into the offer document have to be complied with before the IPO. This would again be procedural.

How will it affect the security of policyholders’ money after divestment? Can sovereign guarantee be extended?

The government has assured that the procedural guarantee will be provided post-IPO and the status of a policyholder does not change at all. One must remember that the disinvestment will be for just a small part, which according to official sources will not be more than 10%.

Will the IPO open the door for further divestment in LIC?

It surely will open the door for the same. If the government has plans to unlock value from such institutions and the proceeds are good, they could go for further disinvestment while ensuring that it remains the majority owner with 51%.

What are the positives for the LIC and policyholders after divestment?

In terms of working, there should be status quo after disinvestment. A lot will depend on who the shareholders are and whether they get board seats. This would be the interesting part.

What are the negatives?

While this may not be an immediate issue, once LIC is listed, the market will interpret all actions taken by LIC in the (share) price. Hence, if LIC is the buyer of shares in other disinvestment programmes of less profitable companies, it can get reflected in (its share) price.

Insurance companies are apprehensive that once LIC is listed, their business may get impacted?

Not really. LIC is the biggest player and the most trusted one. It will be the same even with this disinvestment. It would, however, be interesting to see how the valuation takes place compared with other private players. The business of LIC should not change, given that government will still be owner with 90%.

LIC is a big company. Do you think if the govt wants to divest 10%, the market will have the capacity to absorb it?

This will be interesting, because the market will definitely be tested here. A single issue of say Rs 70-80,000 crore will be a challenge as we have not had such issuances earlier. But there can be a lot of FPI (Foreign Portfolio Investor) interest and hence the matrix of holders will be interesting.