Mumbai: New India Assurance Co. Ltd (NIA) and General Insurance Corp. of India Ltd (GIC) have hired investment banks to manage their initial public offerings (IPOs) as the government seeks to pare its stake in the state-run insurers, according to three people aware of the development.
The government is likely to raise more than Rs10,000 crore by selling its shares to the public, they said.
“NIA had held investment bankers’ presentation on Saturday afternoon at its headquarters in Mumbai. They have appointed Axis Capital, Kotak Mahindra Capital, Yes Bank, IDFC Capital and Nomura to manage the initial public offering (IPO),” said one of the three people cited above, requesting anonymity as he is not authorized to speak to reporters.
The NIA IPO will include the sale of the government’s stake and new shares, said the second of the people cited above. “A part of the proceeds from the divestment will go to the government and another part will go to the company’s books. The firm is planning to divest a total of around 12-15%. The total value of the stake sale could be Rs7,000-8,000 crore,” this person said.
NIA has a solvency margin of around 2.2%, better than the 1.5% minimum mandated by the insurance regulator, limiting the need for additional capital for the insurance company, the person said.
“The industry is growing at a fast rate of around 30%. If a part of the IPO proceeds goes to the company, it will only help to support the fast growth by capital contribution without diluting the solvency margin,” he added.
“Today, no general insurance company is listed. The idea is to get listed and set a benchmark for the industry,” said G. Srinivasan, chairman and managing director of NIA. The listing will take another five to six months, he said.
“The government has to finalize the amount of stake to be divested, which I think we will know in a month’s time. The money raised from the divestment will be used for funding the company’s growth and expansion plans” he added.
On Thursday, GIC also selected five investment banks to manage its IPO. Citibank, Axis Capital, Kotak Mahindra Capital Co Ltd, Deutsche Bank and HSBC were hired by GIC.
“The GIC IPO is expected to be at least Rs7,000 crore in size. The government is divesting 10% stake in GIC, which means the company will be valued at least Rs70,000 crore,” said the third person cited above, also requesting anonymity.
Citibank, HSBC and Deutsche Bank declined to comment on the development. Emails sent on Friday evening to GIC, Axis Capital and Kotak Mahindra Capital were not answered.
The two IPOs will be the first state-run insurance firms to go public. Last year, the Indian primary markets saw the first IPO of an insurance company, that of ICICI Prudential Life Insurance Co. Ltd, which raised Rs6,000 crore.
Appointment of investment banks to manage the share sales of the two insurers is part of the government’s aggressive divestment plans, which has seen the department of investment and public assets management put out “requests for proposal” for over a dozen state-owned companies either through IPOs or offer for sale or strategic divestments.
To abide by the mandated 25% public shareholding in listed companies and unlock their value, the Cabinet Committee on Economic Affairs on 13 April approved listing of 11 central public sector enterprises, Mint reported.
The list includes railway subsidiaries Rail Vikas Nigam Ltd, IRCON International Ltd, Indian Railway Finance Corp. Ltd, Indian Railway Catering and Tourism Corp. Ltd (IRCTC) and RITES Ltd.
Other state-owned firms that have been cleared for IPOs include three defence ministry enterprises—Bharat Dynamics Ltd, Garden Reach Shipbuilders and Engineers Ltd and Mazagon Dock Shipbuilders Ltd—MSTC Ltd and Mishra Dhatu Nigam Ltd, controlled by the steel ministry, and North Eastern Electric Power Corp. Ltd, which is under the power ministry.