[blackwasp]

The Centre on Friday set the ball rolling for partial divestment of its stake in India’s largest insurer and institutional investor - Life Insurance Corporation of India (LIC).

The Department of Investment and Public Asset Management (Dipam) under the finance ministry has issued a request for proposal (RFP), seeking to engage pre-transaction advisors for partial disinvestment of the government’s equity shareholding in LIC through an IPO, the scope of which could include advising government on the necessary amendments needed to the LIC Act.

It proposes to engage up to two pre-IPO transaction advisors from "reputed professional consulting firms/ investment bankers/ merchant bankers/ financial institutions/ banks, independently (not in consortium) for facilitating or assisting Dipam in the preparatory processes leading to the IPO of LIC India."

The government has 95% stake in LIC, according to the RFP.

The last date for bid submission is 13 July, and the bids will be opened 14 July.

Currently, there are 24 life insurers in India, with state-run LIC being the largest, commanding a market share of 69% in fiscal 2020. LIC collected a total first year premium of Rs. 1.78 trillion in FY20, up 25.2% year-on-year, according to the Insurance Regulatory and Development Authority.

The Dipam circular said to qualify as an advisor for the pre-IPO deal, the bidder should have an experience of handling at least one IPO of a minimum size of ₹5,000 crore between 1 April, 2017, and 31 March, 2020, or should have managed a capital market transaction of ₹15,000 crore or more during this period.

The fee quoted by the potential advisor for the deal should be a minimum of Rs1.

Source

[V.Narayan]

On the one hand I am pleased to see the Govt at least trying to move forward with the divestment {Partial? or full} of LIC as it has promised a while back. On the other hand LIC is not your usual PSU. It is backed by a sovereign guarantee which in these troubled times has some real meaning for the average retail/individual insurer. I hope this is a part divestment of say 40% so that it on the one hand raises funds for the cash strapped Govt of India and opens LIC to greater scrutiny and transparency and on the other hand improves products and services to the end customer. Let's see if this gets done or like Air India becomes an eternal saga that will achieve little other than demoralize the staff.

Personally speaking I have been a customer of LIC since the 1980s and thus far have enjoyed quite decent service even though my original LIC agent passed away many years ago.

[srini1785]

It gives me mixed feelings on reading this news. On one hand , its right to reduce the huge bureaucracy in such PSU and become leaner and healthier. However, i suspect that' s not the intent of GOI. LIC offers some low hanging fruit for the cash strapped GOI's picking. With the present slow down of the economy and COVID crisis, GOI is hard pressed for liquidity and i suppose that selling some non majority stake would do no harm. If this move stops the GOI from hiking fuel prices even higher, it would certainly help the common man. The other avenue of raising cash like Bond sales are less likely to generate any interest since the outlook is already negative for near future.

While GOI is very right in its disinvestment of Air india and other loss making PSU's , this news would be greeted cautiously by the general public.

[avira_tk]

This is dreadful news, I guess you never let a crisis go waste. I like how flogging the family silver is considered free market genius. Let's start the clock on the bailout.

[DigitalOne]

Originally Posted by srini1785

With the present slow down of the economy and COVID crisis, GOI is hard pressed for liquidity and i suppose that selling some non majority stake would do no harm.

Originally Posted by avira_tk

This is dreadful news, I guess you never let a crisis go waste.

LIC disinvestment was announced in this years budget on 1 Feb 2020, much before the covid crisis struck.

Originally Posted by V.Narayan

It is backed by a sovereign guarantee which in these troubled times has some real meaning for the average retail/individual insurer. ...

opens LIC to greater scrutiny and transparency and on the other hand improves products and services to the end customer.

I have a rather different opinion. The "sovereign guarantee" and huge agent fees is what induced many naive investors to flock to LIC's endowment schemes. Endowment schemes, as all investment experts have pointed out typically neither fulfill insurance purposes (very low insured amount) or investment (non-transparent, non-liquid, and low returns).

Back in 2001, I got conned into such an expensive endowment (Jeevan Anand) plan. I paid around 36000 per year for 12 years (Total premium 430,00 INR). If I conk off this year, my nominee gets a grand 5 lakhs. If I survive till 2021 (as I plan to ), I might get around 12-13L, a paltry CAGR of around 5%. Again no transparency on how much I can get.


Agree on the transparency part of LIC's finances. In the last couple of decades LIC has been used mercilessly to buy all failed PSU disinvestment shares. It will be really interesting to see whether they are actually making profits on those PSU share purchases. I am afraid we may have to get ready for some nasty shocks.

[Lalvaz]

3 questions that bother me with this impending IPO:

1) What will the proceeds be used for? If they will be squandered (as is most likely), then basically its living off the family silver, which isn't a good thing.

2) Post privatization, who will bear the brunt for future bailouts like IDBI bank and so many others? Will they sell only part stake and then still saddle LIC with bad investments?

3) What impact does it have on policy holders, many of whom bought LIC policies and annuities on the sole reason that it was a govt company and hence immune to bankruptcy? Won't they effectively be cheated since there would be a fundamental change in ownership?

[SmartCat]

Originally Posted by Lalvaz

1) What will the proceeds be used for? If they will be squandered (as is most likely)

Proceeds will show up in Govt's balance sheet. It will then be used based on budgetary allocation

Post privatization,

LIC is not being privatized. It is just being listed.

who will bear the brunt for future bailouts like IDBI bank and so many others? Will they sell only part stake and then still saddle LIC with bad investments?

LIC will continue to play the role of white knight.

What impact does it have on policy holders, many of whom bought LIC policies and annuities on the sole reason that it was a govt company and hence immune to bankruptcy? Won't they effectively be cheated since there would be a fundamental change in ownership?

No change in ownership. Hence, no impact on policy holders.

[GTO]

Originally Posted by SmartCat

LIC is not being privatized. It is just being listed.

What do BHPians think of investing in the stock, assuming the offer price is reasonable? I always & only invest in companies with a strong standing & fundamentals.

Thanks in advance .

[Miyata]

I do look forward to the LIC stocks (if they aren't too exorbitant). Had bought some BHEL stocks a while ago and they have only been sliding downwards ever since!

While my parents and in-laws have had taken LIC policies, I have kept distance from them. LIC as a whole enjoys quite some reputation in my parents' generation but not so among my peers...

[SmartCat]

Originally Posted by GTO

What do BHPians think of investing in the stock, assuming the offer price is reasonable? I always & only invest in companies with a strong standing & fundamentals.

Almost all recent PSU stock IPOs have been reasonably priced. So not much worries on that front. On business front, LIC has been gaining/maintaining market share despite entry of new private players too. Only long term risk in the stock is poor equity investment decisions, forced on it by the Govt. On debt investment front, LIC is also susceptible to corrupt practices - either forced on it by politicians or decisions taken by top management for kickbacks. Eg: LIC invested Rs. 11,000 cr in DHFL and Anil Ambani company bonds and is now a NPA. More cockroaches in the kitchen:

In recent years, a bulk of LIC’s exposure in stressed companies, including IL&FS, Alok Industries, Amtek Auto, ABG Shipyard, Jaypee Infratech, Jyoti Structures and Mandhana Industries, has turned bad, pressuring its profits. However, it has been able to absorb the losses, given its mammoth size. With a debt book of just over Rs 4 lakh crore, LIC is the biggest domestic institutional investor.

https://www.financialexpress.com/mar...f-ipo/1862220/

Note that these are not "innocent" bad decisions. Because private insurers have no or low exposure to such companies. So that way, LIC faces the same risk as PSU banks like SBI - political interference and possible corruption. Few years ago, CEO of LIC Housing Finance was arrested for corruption
https://www.dnaindia.com/mumbai/repo...racket-1471443

The CBI today arrested eight people, including the chief executive officer (CEO) of LIC Housing Finance, Ramachandran Nair, for allegedly giving corporate loans for monetary considerations.

[1.2TSI7DSG]

Personally, I think it's a disastrous move. LIC holds a huge stake in most of the blue chips and PSUs. It is one of the entities which has performed flawlessly.

I think as the individual PSU divestment move is not gaining any interest, the govt has decided to sell of LIC which indirectly will lead to a dilution of holdings in the forward PSUs

[KMT]

Another excellent move by the government.

Governments should focus on governance and running an effective Government, business should be left to businessmen.

Whenever tbese two are mixed up there is a lot of room for inefficiency an corruption.

The Govt should have a strict and robust framework for governance and regulation all such businesses should be run privately.

AirIndia, UTI, LIC, SBI and many many more should all be privatised.

[Stribog]

Originally Posted by V.Narayan

On the one hand I am pleased to see the Govt at least trying to move forward with the divestment {Partial? or full} of LIC as it has promised a while back. On the other hand LIC is not your usual PSU. It is backed by a sovereign guarantee which in these troubled times has some real meaning for the average retail/individual insurer. I hope this is a part divestment of say 40% so that it on the one hand raises funds for the cash strapped Govt of India and opens LIC to greater scrutiny and transparency and on the other hand improves products and services to the end customer. Let's see if this gets done or like Air India becomes an eternal saga that will achieve little other than demoralize the staff.

This is a partial stake offload sir, the GoI owns 95% of LIC. It has a market cap of some 10lakh crores. Even a 10% offload will fetch the govt 1l crores. If the govt is bolder, it will offload some 20-25% which still gives it a clear controlling interest while raising some serious money.

Originally Posted by avira_tk

This is dreadful news, I guess you never let a crisis go waste. I like how flogging the family silver is considered free market genius. Let's start the clock on the bailout.

Why is offloading say 10-20% stake while the govt still retains a controlling stake, and raising some serious cash so objectionable?

Out of sheer curiosity, do you only travel by Air India, use BSNL mobile telephony and broadband, stay only in Ashoka hotels and use only Ration / PDS groceries? Or do you actually consume private sector products?

Till the reforms of 91, let's not forget the state ran everything and we all know the results of that. If Mr Rao wasn't forced to sell the "family silver", god knows that we would be another Zimbabwe or Venezuela now.

Originally Posted by GTO

What do BHPians think of investing in the stock, assuming the offer price is reasonable? I always & only invest in companies with a strong standing & fundamentals.

Thanks in advance .

Solid buy. The fundamentals of LIC are rock solid, as an institution it's not just protected by generic laws but by legislation specifically written for it and if LIC is going down, then the very republic is in grave trouble. You can't go wrong with it though I think the offer price will be reasonable but the demand will push it up to crazy levels and allocation will be minimal. Still worth having it in your portfolio.

To the Casandras, just a quick note

Privatisation is not the same as stake sale.

Air India will be privatised (I hope) meaning it will be sold off entirely to the highest (or only bidder).

LIC is a stake sale. The GoI owns 95% of all LIc shares iirc, they will offload some 10-20% raising 1-2lakh crores while still being the controlling shareholder by a huge margin.

Jio did something similar, it sold some 20% of Ambani's Personal interest, got debt free while retaining a controlling share.

To give an example,

If you own 10 marbles, and in a game you need minimum 5 to decide the rules, if you sell of all 10, you don't own the marbles and can't play anymore. If you sell only 2-3 you still retain the right to set the rules and play the game as you wish.

[Durango Dude]

Thing that comes to mind is the Govt is "seriously strapped for cash". Tax isn't going to be forthcoming this year and even next year. There's no where to park cash for seniors like FD's which is yielding very low returns and taxed...except "invest": it's like gambling in these times as no one knows how the next 6 months are going to be. The Corona second wave is predicted end of the year and if Spanish Flu is any indicator: that could be devastating. We're living in trying times and Govt must wind up all 'freebies', tighten it's belt, cap all salaries and bonuses. Govt's major drain is disbursing salaries to it's staff: which is overstaffed and unproductive. I see a major erosion in the value of the INR (even devaluation) leading to unbridled inflation.

[avira_tk]

Originally Posted by Stribog

Why is offloading say 10-20% stake while the govt still retains a controlling stake, and raising some serious cash so objectionable?

Out of sheer curiosity, do you only travel by Air India, use BSNL mobile telephony and broadband, stay only in Ashoka hotels and use only Ration / PDS groceries? Or do you actually consume private sector products?

Till the reforms of 91, let's not forget the state ran everything and we all know the results of that. If Mr Rao wasn't forced to sell the "family silver", god knows that we would be another Zimbabwe or Venezuela now.

Privatisation is not the same as stake sale.

I have a bsnl mobile connection if that interests you, visits to the bsnl office were any day a better experience than one to the Vodafone store. My job doesn't entail traveling, so the last time I flew was 5 years ago, have traveled by air India before that, found it no worse than the private airline that I was on the last time. You better take pds/rations if you have any clue of what it entails, yes every month,it's good quality stuff.

Venezuela and Zimbabwe are not the countries we need to compare against. Reforms did away with licensing, basically protectionism for the crony capitalists. This is a sellout to finance capital, it'll end badly, but I guess you'll be OK with taxpayer funded bailouts.

Privatisation is socialism for the rich, asset stripping is restricted until the workers are laid off, it's absolutely principled looting unlike say, state control over massive capital formation.