Centre’s next round of stake sale in LIC now likely in FY2026

  • Instead of big issues like the LIC, the market will be tested this year with smaller issues of state-owned enterprises and financial institutions to test investor appetite

Rhik Kundu, Subhash Narayan
Updated14 Jun 2024, 07:06 AM IST
The Indian government owns about 96.5% stake in the LIC after it sold a 3.5% stake in the company at an initial public offering (IPO) in May 2022.
The Indian government owns about 96.5% stake in the LIC after it sold a 3.5% stake in the company at an initial public offering (IPO) in May 2022.(Bloomberg)

The next round of the government's stake sale in Life Insurance Corporation (LIC) is only likely to take place in FY26 as the Centre pauses the privatization process this year to assess investor appetite, two people aware of the matter said.

Instead of big issues like LIC, the market will be tested this year with smaller issues of state-owned enterprises and financial institutions to gauge investor appetite, before the next round of minority share sales in the life insurer is finalized, the first person mentioned above said, requesting anonymity.

'Next round of stake sales when there's appetite from investors'

"The next round of LIC stake sales will happen when there is an appetite from the investors for such issues," the person added.

The government owns about 96.5% stake in LIC after it sold 3.5% in the company at an initial public offering (IPO) in May 2022.

The market regulator Securities and Exchange Board of India (Sebi) had set a deadline of May 2024 for LIC to meet the minimum public shareholding norm of 10%.

This deadline has now been extended till 16 May 2027, giving the insurer three more years to reach the norm.

Also Read: LIC stock available at a discount. So why are'nt investors piling in?

"LIC is too big an issue for the government to keep selling. The government wants to realize the true value of the stock, which has now stabilized. The original investors have got their money now," said the second person mentioned above.

"It is a large organization, and the stake sale will be large in relation to the market. So, the next round is likely to happen only in FY26," the person, speaking under the condition of anonymity added.

The stake sale is expected to be rolled out in small tranches, depending on the insurer’s stock performance. The next instalment could be a mere 1.5% stake sale that will increase the public float to 5% and allow the company’s inclusion in index funds, the first person mentioned above said.

The exact quantum, however, will be decided after accessing the market conditions at the time.

Also This: LIC can achieve minimum public shareholding of 25% by May 2032 as govt grants one-time exemption

To be sure, even a 1.5% stake sale in LIC would be worth around 9,500 crore (at current stock prices). 

The spokespersons of the finance ministry and LIC didn't respond to emailed queries.

LIC’s market capitalization at the time of listing in May 2022 stood at about 5.5 trillion, making it India’s fifth most valuable company.

However, the company’s value has eroded considerably since then.

In the last 12 months, shares of LIC have come under pressure amid multiple headwinds, such as weak market conditions, changes in tax policy and the Adani-Hindenburg row.

Some experts said pushing the divestment process to FY26 and beyond may help the government keep a buffer for the future and prevent shocking the market with a large issue during the ongoing fiscal. 

“Rushing through the stake sale at this point of time may not be prudent. It's better for one to plan it, as large amounts will be involved in the LIC stake sale, and one has to see how the market is behaving. We have to see what kind of appetite is there for such a large issue,” said Madan Sabnavis, chief economist at the Bank of Baroda.

“The upcoming full year budget will not have much time to implement new plans. Meanwhile, by pushing the LIC stake sale to the next fiscal, the Centre will be able to keep a buffer for the next few years, and also be able to analyze the market absorption capacity before coming out with the offer,” he added.

An investment banker, requesting anonymity, said, “It is possible that the government feels the price at which LIC is trading at now is low and not reflective of its true stock value, because, otherwise demand should not be a problem.”

LIC IPO price in 2022 was 949 apiece. On Thursday, LIC stocks closed at 1001.80 a share, up 0.35% from the previous day at the BSE. The Sensex closed at 76,810.90, up 0.27%

To be sure, Indian markets have steadily absorbed large ticket block deals. On Monday, Blackstone sold shares worth 6,736 crore in Mphasis.

 

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First Published:14 Jun 2024, 07:06 AM IST
HomeMarketsCentre’s next round of stake sale in LIC now likely in FY2026

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