26-10-2020
Govt set to divest 10% in GIC Re, New India Assurance
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Insurance AlertssGovt set to divest 10% in GIC Re, New India Assurance
Mumbai: Government is set to offer 10% shares in the country’s largest non-life insurance company New India Assurance through an offer for sale to the public. The Centre may also do a similar dilution in the General Insurance Corporation (GIC Re). However, the timing is not decided.
The government had divested close to 15% stakes in both New India and GIC in 2017. The disinvestment of GIC Re resulted in a mop-up of Rs 11,370 crore and New India’s IPO raised Rs 9,600 crore. Both the companies are currently trading at big discounts to their issue price.
One of the reasons for not going public was that the shares are considered to be undervalued as not only are their prices at a 20% discount to book value, but also that New India has legacy investments in equities and real estate that are not reflected in the book value. Besides ambitious pricing in the IPO, another reason for the discounts is the relatively lower level of liquidity in the shares. Large chunks of the shares are held by public sector institutions.
An offer for sale of shares would have a threefold advantage of complying with regulations, improving liquidity in the shares and helping government raise revenues. GIC Re has a market cap of Rs 21,333 crore, while New India’s share price values the company at Rs 17,000 crore. A 10% dilution would give the government close to Rs 4,000 crore.
All listed companies are required to have at least 25% of their holding with the public. In May this year, Sebi had relaxed the 25% minimum public shareholding norms for listed companies in the wake of the Covid outbreak. The regulator asked stock exchanges not to take any penal action against companies that were to comply with the minimum shareholding rule between March 1 and August 31. Subsequently, in August, the government notified changes in the Securities Contract (Regulation) Rules giving listed companies three years to comply with the minimum shareholding rules.
