Government to Sell Up to 6.5% Stake in LIC, Raise Rs 31,400 Crore
UPSC / SSC current affairs note · Economy
Why in news
The government is launching an offer for sale (OFS) to divest up to 6.5% of its stake in Life Insurance Corporation (LIC) to meet minimum public shareholding norms ahead of schedule. This move is significant as it is the largest OFS for divestment in India and will boost the government's disinvestment kitty, helping it meet its annual target.
Background
LIC was listed in May 2022 through an IPO that was seen as overpriced. The government currently holds 96.5% stake in LIC, with public shareholding at 3.5%. The Securities and Exchange Board of India (SEBI) mandates a minimum public shareholding (MPS) of 25% for listed companies, but LIC was given an exemption with a condition to reach 10% within a specified period.
Key facts
The government will sell up to 6.5% stake in LIC through an offer for sale (OFS) route.
The base offer is 2.5% of LIC's total equity capital, with a green shoe option for another 4%.
The base price is Rs 382 per share, a 10% discount to the stock's Monday close of Rs 424 on BSE.
If fully sold, the government will raise about Rs 31,400 crore.
The OFS will be the largest OFS for divestment in India.
Post-sale, public shareholding in LIC will rise from 3.5% to 10%, meeting SEBI's MPS norm ahead of schedule.
Non-retail investors can bid on the first day (Tuesday), retail investors on the last day (Wednesday).
The government's disinvestment kitty will swell from Rs 21,000 crore to around Rs 52,000 crore.
Including asset monetisation of Rs 6,367 crore, the Centre would have mopped up close to Rs 60,000 crore against the full-year target of Rs 80,000 crore.
The fiscal deficit is budgeted at 4.3% of GDP.
Prelims pointers
- LIC: Life Insurance Corporation of India, a public sector insurance company.
- OFS: Offer for Sale, a mechanism for selling shares in a listed company.
- MPS: Minimum Public Shareholding norm of 25% for listed companies, but LIC has a relaxed target of 10%.
- SEBI: Securities and Exchange Board of India, the market regulator.
- DIPAM: Department of Investment and Public Asset Management, under the Ministry of Finance.
- Green shoe option: An over-allotment option allowing the seller to sell additional shares if demand is high.
- Base price: The minimum price at which shares are offered in an OFS.
- Fiscal deficit: The difference between total revenue and total expenditure of the government.
- Asset monetisation: Selling or leasing public assets to raise funds.
- IDBI Bank: Another public sector bank where the government is planning a stake sale.
Mains angles
- Discuss the significance of disinvestment in meeting fiscal targets and its impact on government finances.
- Critically examine the role of SEBI's MPS norms in ensuring public participation in listed companies.
- Evaluate the performance of LIC as a listed entity since its IPO and the implications of the government's stake sale.