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The country’s largest life insurer Life Insurance Corporation of India (LIC) seems to be propping up the government disinvestment programme. From 2011-12 till now almost 37 per cent of the government’s receipts from stake sales in public sector undertakings have come from LIC.
LIC has bought shares worth at least ₹36,686 crore in various PSUs under the programme in the last six years. This amounts to over 37 per cent of the ₹97,620 crore raised through disinvestment in state-owned firms by the Centre since 2011-12. Corporate filings to the BSE reveal that the insurer, which is supposedly called upon by the Finance Ministry to rescue PSU disinvestment, was the main purchaser of shares in a number of stake sales over the years, including the 10 per cent disinvestment in Indian Oil Corporation in August.
The investments of LIC are based on the shares bought during the stake sales multiplied by the floor price of the public offers, according to information on the BSE.
But not always has LIC earned returns on its investments. “On an aggregate basis, LIC may be a winner. But this is not the best route for disinvestment. Sale of shares can be done to LIC through a private deal also, why does the government have to do a public offer,” said Prithvi Haldea, Founder and Chairman of Prime Database, adding that the disinvestment policy should be reviewed to have a wider shareholding and reach to retail investors.
Government officials, however, point out that many of these PSUs are blue chip companies and are often a good investment.
Three types of issues“There are always three types of disinvestment issues — where LIC did not get anything at all as its bids were very low; where it was a regular investor; and where it was called on to invest,” said a former Finance Secretary.
Experts point out that on average LIC must have gained from these investments but the disinvestment policy must be reviewed to ensure that it is attractive enough. In 2011, the Parliamentary Standing Committee on Finance had raised the issue and called for a rational disinvestment policy that was not focussed only on revenue generation. LIC pumped in about ₹8,000 crore and bought 20.87 crore of the 24.28 crore shares on offer in IOC. The Centre raised ₹9,379 crore from the disinvestment — the highest amount raised so far this fiscal.
The insurer also invested about ₹11,426 crore in the 4.91 per cent stake sale in ONGC in 2011-12, which amounted to 89.6 per cent of the ₹12,749.50 crore raised through the exercise.
Similarly, it pumped in over 70 per cent of the ₹1,514 crore raised from the 5.82 per cent disinvestment in Steel Authority of India Ltd in 2012-13 and bought 16.96 crore shares from 20.74 crore shares on offer.
But to be fair, not all stake sales were dependent on a bailout by LIC. Many disinvestment issues, including 10 per cent stake sales in OIL in 2012-13 and Engineers India Ltd in 2013-14, managed to sail through on their own.
In response to separate queries under the Request for Information Act, 2005 by the BusinessLine on the quantum of shares bought by LIC in each of the disinvestment issues, the Department of Disinvestment and the Department of Financial Services said they do not maintain such information.
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