Budget 2020: State-owned LIC all set to go public

In her budget speech, Nirmala Sitharaman proposed that the government will also sell its stake in IDBI Bank to private investors and amend the Banking Regulation Act to strengthen cooperative banks.

Finance minister Nirmala Sitharaman said on Saturday that the government plans to sell a partial stake in Life Insurance Corporation of India (LIC), the country’s largest insurer and institutional investor, through an initial public offering (IPO).

At even 25%-30% of its assets under management, LIC can be valued at around ₹8-10 lakh crore, analysts said. (reuters file)

In her budget speech, she proposed that the government will also sell its stake in IDBI Bank to private investors and amend the Banking Regulation Act to strengthen cooperative banks.

The finance minister also said the deposit insurance coverage in case of bank failures will be increased to ₹5 lakh from ₹1 lakh. She proposed to expand floating a debt exchange-traded fund (ETF), consisting primarily of government securities, to expand the debt market .

Shares of IDBI Bank surged 10.2% after the budget, the biggest gain since November, while those of private insurers fell. LIC bought 51% of IDBI Bank last year, leaving the government with about 47%. That means the government could raise $25 billion at Saturday’s price, Bloomberg calculations show.

Sitharaman didn’t say how much of LIC the government plans to sell. Given that the giant holds about $433 billion in assets — more than the whole of India’s mutual fund industry combined — even a minuscule sale would be quite large. India has penciled in ₹2.1 lakh crore from asset sales in the year starting April 1, more than double that of previous year.

Bloomberg quoted finance secretary Rajiv Kumar as saying, “Target specified by honourable finance minister will come from listing of LIC and IDBI at this stage.”

ICICI Direct analyst Kajal Gandhi said, “LIC is likely to become the country’s biggest company by market capitalisation on the day of the listing given that it is the largest company in terms of assets under management (AUM).”

Assessing LIC, an over 60-year-old company,  just on embedded value like other private sector insurers that have been around for about 20 or less years may not be only criteria. AUM and profits will also be the key determinants, Gandhi said.

“A government-owned entity, LIC is likely to see valuation gap versus private players,” Gandhi said, adding that at even 25%-30% of its AUM, the company can be valued at around ₹8-10 lakh crore.

Even a 10% dilution will be difficult for market to absorb in one go and the government may look at doing this in lots, she added.

A “highlight of the budget is the LIC IPO, which is akin to the Saudi Aramco listing for Indian capital markets, and will be IPO of the decade,” Vijay Bhushan, President, Association of National Exchanges Members of India (ANMI) said.

Bloomberg contributed to this story