In a significant move to meet regulatory requirements and infuse liquidity into the market, the Indian government is preparing to divest a 6.5% stake in the Life Insurance Corporation of India (LIC). This strategic sale, expected to be launched by the end of this year, is projected to generate between ₹8,800 crore and a substantial ₹13,200 crore for the exchequer.
According to a report in the Economic Times, the core objective behind this disinvestment is to increase LIC’s public shareholding, ensuring it aligns with the norms set by the Securities and Exchange Board of India (SEBI). Roadshows to gauge investor interest and market the offering are likely to commence in the coming weeks.
Why is the Government Selling its Stake?
The divestment is not merely a fundraising exercise but a necessary step to comply with SEBI’s listing regulations. These rules mandate that any listed company must maintain a minimum public float of 10%. Currently, the government holds a commanding 96.5% stake in the insurance behemoth, leaving the public shareholding at just 3.5%.
To bridge this gap, the government must offload an additional 6.5% of its holdings. Recognizing that a large, single sale could destabilize the stock price and harm existing investors, the stake sale is expected to be conducted in a phased manner through the year. This approach aims to minimize market impact and ensure a smoother absorption of the shares.
How Will the Sale be Executed?
The Department of Investment and Public Asset Management (DIPAM), the government’s nodal agency for disinvestment, is spearheading the process. DIPAM is currently finalizing the detailed timeline and the exact quantum of the offering for each tranche.
Sources indicate that the government is evaluating the best method for the sale, with options like a Qualified Institutional Placement (QIP) or an Offer for Sale (OFS) route on the table. These methods are efficient for selling large blocks of shares to institutional investors.
A Recap and the Road Ahead
This will be the government’s second major stake sale in LIC. The first was the landmark Initial Public Offering (IPO) in May 2022, where a 3.5% stake was sold, raising ₹20,557 crore.
In a relief to the corporation, SEBI in May 2024 granted LIC an additional three years to achieve the 10% minimum public shareholding target. Furthermore, LIC has until May 2032 to meet the broader requirement of a 25% public float.
A Crucial Assurance for Policyholders
Amidst these corporate actions, the government and LIC have consistently assured the millions of policyholders that the disinvestment will have absolutely no impact on their policies, bonuses, or claim settlements. LIC continues to function with its robust financial backbone, and the stake sale only alters the ownership structure in the stock market, not the fundamental security of the policies it holds.
