Will LIC be the white knight of disinvestments?

The government announced disinvestments in five public sector undertakings (PSUs) after the approval of Cabinet Committee of Economic Affairs. However, the bigger question here is whether Life Insurance Corporation of India (LIC) will play the white knight in this divestment process.

Being the largest institutional investor in the country, LIC is a prominent participant in the divestment process of government entities. LIC prefers investing in entities that have a long-term growth horizon (10-15 years) since their insurance products are also long term in nature.

"It is anticipated that LIC will play a key role since it has adequate appetite for these instruments," said an official. LIC did not respond to a query sent by Moneycontrol.

Typically, LIC invests between Rs 50,000 crore to 55,000 crore in equities. While LIC maintains that it invests only in instruments based on a strategic call, it is a fact that the insurer has helped key divestments sail through. For instance, when the government wanted to cut stake in IDBI Bank, LIC stepped in and bought 51 percent stake in the bank by infusing Rs 21,600 crore.

Disinvestments

On November 20, CCEA approved stake sale in five public sector entities including BPCL, Container Corporation, North Eastern Electric Power Corporation, Shipping Corporation of India and Tehri Hydro Development Corporation.

Of these, North Eastern Electric Power Corporation and Tehri Hydro Development Corporation will be sold to NTPC as part of a proposal. As far as BPCL, Concor and Shipping Corporation are concerned, the government has said that they would be open to giving up management control. This is part of the planned activity of the finance ministry that has set a target of Rs 1.05 lakh for 2019-20 as the divestment target. Of this, the centre has received only Rs 13,000 crore so far including the recent IPO of IRCTC. "It is a tough market and the divestment target is high. Large institutions like LIC will have to step in to help bridge the gap," added a senior ministry official.

LIC has been often regarded as the 'white knight' of the disinvestment programmes of the government and has helped several such offers sail through, be it the Rs 9,600 crore State Bank of India qualified institutional placement in 2014 where it put in almost Rs 7,200 crore, the Coal India stake sale in 2015 where the insurer bought almost 50 percent of the shares on offer or the NTPC stake sale in 2016 where LIC bought 59 percent of the offer.

Even state-owned entity IPOs like that of Hindustan Aeronautics, General Insurance Corporation of India and New India Assurance have seen heavy investments from LIC. The recent IRCTC IPO was an exception where there was a huge demand from foreign institutional investors as well. In the April to October period, LIC outdid most of the competition, with new premium growth of 37.7 percent YoY at Rs 1.01 lakh crore.

Since the equity investments are made out of the policyholder's funds, a rise in new premium collection also means good news for the stock market investments by LIC. LIC is likely to end FY20 with an all-time high equity investment (gross) of around up to 72,000 crore, an all-time high, sources said. In FY19, LIC invested around Rs 68,620 crore into the equity market.

Source: Money Control