To go for ₹1 tn LIC IPO at one go is not advisable: DIPAM Secretary
Tuhin Kanta Pandey explains the road ahead for the big ticket disinvestment announcements made in Budget 2021
PremiumThe budget for FY22 made some big-ticket announcements on disinvestment including a public sector enterprise policy delineating the strategic and non-strategic sectors and promising a sale of two public sector banks and a general insurance company. Tuhin Kumar Pandey, secretary in the department of investment and public asset management (DIPAM) in the ministry of finance in an interview explained the road ahead. Edited excerpts:
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Will DIPAM come out with further details on the disinvestment policy?
Yes, we will issue the office memorandum soon and that is basically the crux of the policy except that the policy also has a mechanism that there will be a (role for) NITI Aayog, core group of secretaries on disinvestment and alternative mechanism of group of ministers to decide the ‘bare minimum’ PSUs. When the actual disinvestment takes place, the usual process through the Cabinet Committee of Economic Affairs will be followed because the timing will depend on the appropriate sequencing, market interest etc. As the appetite in the private sector slowly builds up through recovery, there will be greater offering for disinvestment.
How much stake is the government planning to divest in Life Insurance Corporation (LIC) through the initial public offering (IPO)?
We are not clear yet on the quantum of the IPO. We are waiting for the embedded value to be worked out and based on that we will take a decision. And along with Sebi (Securities and Exchange Bureau of India) then we have to go and determine the size, but it is going to be a large issue. The process of finding the embedded value of LIC is on. LIC is to try and work out its own methods first and then the independent actuary has to submit its report. Both the processes have been set in motion. We are looking for an IPO post October. We have proposed to reserve up to 10% in the retail segment of the IPO for policy holders. We want the policy holders also to be our shareholders.
Some analysts feel the size of the IPO itself could be ₹1 trillion or more.
The size will depend on market appetite, how much can be marketed at one go. Normally, you have got maximum issue size of ₹6,000-7,000 crore. Suddenly to expect ₹1trillion at one go may not be advisable. It can be done in a phased manner.
The budget has revised the disinvestment target to ₹32,000 crore for FY21 while at present we are close to ₹20,000 crore. Which are the other sales we are planning in the remaining period of less than two months?
There will be different kinds of market-related transactions. We have to complete the Tata Communications transaction. Some buybacks were announced but they have not matured, so the receipts will come.
How will establishing a special purpose vehicle (SPV) help in asset monetization of PSEs?
SPV is one of the methods—it is not that every asset monetization will be done through SPV. There is a Railways Land Development Authority which is fully empowered to monetize Railways land. But there could be many other departments which do not have the capacity, so this SPV will help them to monetize assets. We have signed an agreement with World Bank, they are advising us and one of the important takeaways is to build capacity across the government for asset monetization.
Budget has announced a package to incentivize states to disinvest their public sector companies. What would be the broad contours of this package?
We will work out the design of it. Broadly the intention is that this is a very important reform that states should follow. In order to spur growth you need resources. More importantly for capital formation and capex cycle, you need to unlock value of surplus assets and also monetize core assets.
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