[Budget 2020] LIC To Go Public To Pay For Govt's Disinvestment Target Of INR 2.11 Trillion For FY21
The government will sell partial stake in the insurer through an initial public offering.
The government has doubled its disinvestment target for FY21 to a staggering budget estimate (BE) of INR 2.11 trillion compared with a BE INR 1.05 trillion for FY20, and has put in line the milch cow Life Insurance Corporation of India (LIC).
The revised disinvestment estimate for FY20 has been lowered to INR 65,000 crore.
Finance minister Nirmala Sitharaman while presenting the Union Budget 2020 announced the government will dilute its stake in LIC through an initial public offering. At present the government holds a 100 per cent stake in the cash-rich public insurer which often comes to the rescue of government-floated schemes.
“Listing of companies on stock exchanges discipline a company and provides access to financial markets and unlocks its value. It also gives opportunity for retail investors to participate in the wealth so created,” Sitharaman said in her speech.
Joins Air India and BPCL
LIC joins the league of Air India and Bharat Petroleum Corporation (BPCL), as the government prepares to part with its entire stake in the latter two entities.
After its failed attempt to sell a 76 per cent stake in the debt-laden national carrier in 2018, the ministry of civil aviation recently sweetened the deal by slashing debt burden for potential buyer by two-third and offering 100 per cent for sale. Last year, the Union Cabinet had also approved stake sale in oil marketer BPCL.
The government has been quite actively pursuing its disinvestment plans for the past couple of years. In FY19, ONGC bought government’s 51.1 per cent stake in Hindustan Petroleum Corporation for INR 36,915 crore which helped the government to reach its disinvestment target for that year. Nevertheless, the debt-free ONGC took a loan of INR 25,000 crore to pay for the deal.
The government’s aggressive stance towards disinvestment was clear from the Economic Survey 2020 released on Friday which pitched for letting go of stake in central public sector enterprises.
“Key financial indicators, such as net worth, net profit and return on assets, of the privatized CPSEs, on an average, have increased significantly in the post-privatization period compared to peer firms. This improved performance holds true for each CPSE taken individually as well,” said the survey justifying privatization as it leads to higher profitability, efficiency, competitiveness and professionalism.
“The recent approval of strategic disinvestment in Bharat Petroleum Corp. Ltd (BPCL) led to an increase in value of shareholders’ equity of BPCL by INR 33,000 crore when compared to its peer Hindustan Petroleum Corp. Ltd (HPCL). This reflects an increase in the overall value from anticipated gains from consequent improvements in the efficiency of BPCL when compared to HPCL, which will continue to be under government control,” the survey noted.
The Economic Survey is considered to be the directional indicator for Union Budget.